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LHO Chicago River, L.L.C. v. Rosemoor Suites, L.L.C.

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

February 3, 2017

LHO CHICAGO RIVER, L.L.C., Plaintiff,
v.
ROSEMOOR SUITES, L.L.C., PORTFOLIO HOTELS & RESORTS, L.L.C., and CHICAGO HOTEL, L.L.C., Defendants.

          MEMORANDUM OPINION

          CHARLES P. KOCORAS, District Judge.

         This matter comes before the Court on Plaintiff LHO Chicago River, L.L.C.'s (“LHO”) Motion for Preliminary Injunction against Defendants Rosemoor Suites, L.L.C.; Portfolio Hotels & Resorts, L.L.C.; and Chicago Hotel, L.L.C. (collectively, “Defendants”) pursuant to Federal Rule of Civil Procedure 65. For the following reasons, the Court denies LHO's Motion.

         BACKGROUND

         The subsequent facts are adopted from Magistrate Judge Susan E. Cox's Report and Recommendation. Additional facts are taken from the Complaint, the parties' briefs, and the evidentiary hearing held before the Court on November 17, 2016 (the “hearing”). The Court relies on sealed exhibits in its analysis, and we cursorily discuss such evidence to protect the confidential information contained therein.

         Both parties claim to own the would-be mark “‘Hotel Chicago' for use with hotel services.” At the hearing, Joseph Perillo (“Perillo”), an automobile dealer and owner of the hotel located at 1622 West Jackson Boulevard in the West Loop Medical District neighborhood of Chicago, Illinois (the “Medical District Hotel”), testified that he contracted for the hotel at “the end of 2012.” On or around January 4, 2013, “Defendants formed a limited liability company, ” (the “L.L.C.”), “and ‘filed for the assumed name of HOTEL CHICAGO' with the Illinois Secretary of State.” Perillo testified that the name of the L.L.C. is “Chicago Hotel, L.L.C., ” and “Hotel Chicago” is the assumed name that he also secured. Perillo stated that on March 19, 2013, he closed on the hotel. The Medical District Hotel was first known as Rosemoor Hotel, which in Perillo's words, “was a flophouse.” He claims that Rosemoor Hotel had “unsavory customers, ” such as “dope-pushers . . . and prostitutes.”

         However, Perillo contends that he rebranded the Rosemoor Hotel and started operating it as “Hotel Chicago” “during a soft partial opening period, ” beginning in September 2013. Defendants claim that, during this time, they “organically began changing signs, and using HOTEL CHICAGO with . . . suppliers, some customers, and constructors, ” as they started “to renovate the hotel.” In September 2013, Perillo claims that he hired an architect and a sign company. Perillo testified that he requested that the sign company retain the existing sign, but change the lettering on it from “Rosemoor Hotel” to “Hotel Chicago.” Perillo contends that the Medical District Hotel “kept in business” during the entire rebranding period.

         “As proof of this rebranding effort” and the Medical District Hotel's operation as “Hotel Chicago” during 2013, Defendants offered into evidence two undated parking signs that Perillo claims were displayed as of September 2013. They read: “Parking Only for Chicago Hotel Guests” and “All Deliveries in Rear for Chicago Hotel LLC.” Perillo testified that the latter sign “was in the alley and the back door, so that . . . people who were” making deliveries “weren't confused that they were in the wrong hotel” since “the sign in the front . . . still” displayed the “Rosemoor Hotel” lettering. The former sign, he stated, “was in the parking lot” since people were bringing and leaving their cars there “while they went to . . . sporting events or concerts” at The United Center. Perillo contends that the signs were taken down after the name “Hotel Chicago” replaced the “Rosemoor Hotel” lettering out front.

         LHO claims that it began using the would-be “Hotel Chicago” mark in February 2014 when it rebranded Hotel Sax to “Hotel Chicago, ” located at 333 North Dearborn “in the River North neighborhood of Chicago (the ‘River North Hotel').” The River North Hotel has been using the would-be “Hotel Chicago” mark since then. The River North Hotel is currently the only hotel in Illinois that is part of the Autograph Collection of Marriott hotels. According to LHO, the Autograph Collection is “a global ensemble of 106 upscale, independently-owned hotels, each selected for its quality and character.” LHO claims that “the Autograph Collection is the lodging industry's fastest growing upscale brand.” The River North Hotel is marketed with over 4, 000 Marriott hotels in more than “80 countries and territories.” Guests of the River North Hotel also “enjoy all of the benefits of Marriott Rewards, ” which LHO claims is an “award-winning loyalty program.”

         Alfred Young (“Young”), the Chief Operating Officer of LaSalle Hotel Properties, testified that LHO “spent roughly a million and a half dollars per year, ” or nearly 4 to 4.5 million dollars over the course of three years, in general advertising and marketing of the River North Hotel. This figure includes labor costs, trade shows, and other sales initiatives. It does not, however, include the “fees paid to Marriott in connection with the franchise agreement, ” which costs around 2.5 to 2.8 million dollars. This additional sum includes “website presence and internet advertisements; annual membership in travel associations and resources . . .; investment in hotelier event management technology; participation in national trade shows; advertisements in travel and wedding publications and mailers; and email campaigns.” Of these sums, LHO contributed “$300, 000 in brand awareness marketing” of “Hotel Chicago” specifically.

         The River North Hotel has been thriving. Each night, it has “354 rooms available for sale.” At the hearing, LHO stated that since 2014, the River North Hotel has booked “approximately 300, 000 room nights, ” “represent[ing] a nearly 20 percent increase in bookings compared to” Hotel Sax. At the end of 2013, LHO was around 65-66 percent occupancy, and it predicted that it will end 2016 around 87-88 percent occupancy.

         “On January 28, 2016, Portfolio Hotels & Resorts, ” which operates the Medical District Hotel, “registered the domain name of ‘hotelchicago1622.com.'” Defendants also filed two intent-to-use applications with the United States Patent and Trademark Office (the “USPTO”) for the would-be “Hotel Chicago” mark “in connection with hotel services.” On February 17, 2016, they “filed . . . an intent-to-use application . . . U.S. Serial No. 86/910, 607, for registration of the mark HOTEL CHICAGO for use in connection with hotel services in International Class 43.” On March 2, 2016, they filed “a second intent-to-use application, U.S. Serial No. 86/926, 504, for registration of the” HOTEL CHICAGO associated design “for use in connection with hotel services in International Class 43.”

         At the hearing, Perillo testified that the grand opening of the Medical District Hotel occurred in May 2016, which is when LHO claims that Defendants first began using the would-be “Hotel Chicago” mark. Perillo testified that, today, the Medical District Hotel is “a three-star” “boutique hotel.” He stated that “[i]t's not . . . real fancy, but it's a cute hotel, . . . it's very clean, . . . the people are nice, and [it] offer[s] rooms for the general public around, mostly for the for the people that are convenient to the medical center and [T]he United Center and all the businesses around there.”

         The River North and Medical District hotels are approximately three miles apart. “LHO has documented several instances of guest confusion, ” where “guests have arrived at the River North Hotel, only to find out upon check-in that . . . their reservations were at” the Medical District Hotel.

         Defendants claim that they “were unaware of [LHO's] use of the expression HOTEL CHICAGO until” on or around June 15, 2016, when they received a cease and desist letter from LHO. On June 30, 2016, “LHO brought the instant suit.” LHO “does not own a registration.” Instead, “LHO asserts four claims against Defendants: federal trademark infringement and unfair competition under Section 43(a) of the Lanham Act, 15 U.S.C. § 1125(a); trademark infringement under Illinois common law; and deceptive trade practices under the Illinois Uniform Deceptive Trade Practices Act, 815 Ill. Comp. Stat. 510/1 et seq.”

         On June 30, 2016, LHO also filed a Motion for Preliminary Injunction, which we referred to Magistrate Judge Cox for a Report and Recommendation. On August 25, 2016, Magistrate Judge Cox recommended that the Court grant LHO's Motion for Preliminary Injunction, enjoining Defendants “from using the trademark ‘Hotel Chicago' in connection with hotel services.” On September 8, 2016, Defendants filed their written objections to the Report and Recommendation. LHO filed its Response to Defendants' written objections on September 19, 2016. The Court determined that it would be prudent to hold an evidentiary hearing. See 28 U.S.C. § 636(b)(1) (“The judge may also receive further evidence.”). We did so on November 17, 2016. At the hearing, Young and Mark Deinhart (“Deinhart”), the General Manager of the River North Hotel, testified for LHO. Jennifer Knoedl (“Knoedl”), an entrepreneur; Imran Jivani (“Jivani”), General Manager of the Medical District Hotel, former Director of Front Office Operations at the River North Hotel, and teacher of “Hospitality Property Management Systems” at Kendall College; and Perillo, testified for Defendants. Based on the record evidence, LHO has failed to meet its burden of demonstrating that it is likely to succeed on the merits, specifically, in proving that the would-be “Hotel Chicago” mark has acquired secondary meaning, rendering it protectable. We therefore deny LHO's Motion for Preliminary Injunction.

         LEGAL STANDARD

         I. Preliminary Injunction

         “The purpose of preliminary injunctive relief is ‘to minimize the hardship to the parties pending the ultimate resolution of the lawsuit.'” Platinum Home Mortg. Corp. v. Platinum Fin. Grp., Inc., 149 F.3d 722, 726 (7th Cir. 1998) (quoting Faheem-El v. Klincar, 841 F.2d 712, 717 (7th Cir. 1988)). “A party seeking to obtain a preliminary injunction must” demonstrate three points. Ty, Inc. v. Jones Grp., Inc., 237 F.3d 891, 895 (7th Cir. 2001). First, it must show that “its case has some likelihood of success on the merits;” second, “no adequate remedy at law exists; and” third, “it will suffer irreparable harm if the injunction is not granted.” Id. “If the court is satisfied that these three conditions have been met, then it must consider the irreparable harm that the nonmoving party will suffer if preliminary relief is granted.” Id. The Court balances this harm “against the irreparable harm the moving party will suffer if relief is denied.” Id. “Finally, the court must consider the public interest, ” or that of non-parties, “in denying or granting the injunction.” Id. “[T]he more likely the plaintiff will succeed on the merits, the less the balance of irreparable harms need favor the plaintiff's position.” Id. “The sliding scale approach is not mathematical in nature.” Id. Instead, it is “subjective and intuitive, ” and it allows the Court “to weigh the competing considerations and mold appropriate relief.” Id. at 896 (citation omitted).

         II. The Report and Recommendation

         The Court “shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made.” 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(a) (“The district judge . . . must consider timely objections and modify or set aside any part of the order that is clearly erroneous or is contrary to law.”). This “requires the district judge to decide the case based on an independent review of the evidence and arguments without giving any presumptive weight to the magistrate judge's conclusion.” Mendez v. Republic Bank, 725 F.3d 651, 661 (7th Cir. 2013). Although LHO takes issue with the arguments and evidence that Defendants presented for the first time in their objections, a “district judge is free, and encouraged, to consider all of the available information about the case.” Id. The Court “may accept, reject, or modify, in whole or in part” the Report and Recommendation. 28 U.S.C. § 636(b)(1).

         III. Trademark Infringement

         “In a trademark infringement claim, the plaintiff must demonstrate: (1) the validity of its trademark; and (2) the infringement of that mark.” Platinum, 149 F.3d at 726. “The validity of a mark pertains to whether a ‘word, term, name, symbol or device' . . . is entitled to protection under trademark law by focusing on whether that mark specifically identifies and distinguishes one company's goods or services from those of its competitors.” Id. “The infringement of a mark concerns whether the actions of a subsequent user of a substantially similar or identical mark causes a likelihood of confusion among consumers as to the source of those specific goods or services.” Id.

         “When the identifying ‘word, term, name, symbol or device' claimed as a trade name or mark is not registered with the” USPTO, “the burden is on the claimant . . . to establish that it is entitled to protection under § 43(a) of the Lanham Act.” Id. at 727; see Mil-Mar Shoe Co., Inc. v. Shonac Corp., 75 F.3d 1153, 1156 (7th Cir. 1996). “[T]he general principles qualifying a mark for registration under . . . the Lanham Act are for the most part applicable in determining whether an unregistered mark is entitled to protection under § 43(a).” Two Pesos, Inc. v. Taco Cabana, Inc., 505 U.S. 763, 768 (1992). Since LHO “does not own a registration but instead is only asserting common law rights, ” it “does not benefit from the Lanham Act's[ ] presumptions of ownership, validity of the mark, and enforcement rights.” See Platinum, 149 F.3d at 726-27. Thus, to ultimately prevail, LHO must prove ownership of the would-be “Hotel Chicago” mark, that it is entitled to protection, and that Defendants' use of “Hotel Chicago” is likely to cause confusion among consumers. See Id. “The analysis is the same for the remaining claims of common law trademark infringement and deceptive trade practices.” See Tony Jones Apparel, Inc. v. Indigo USA LLC, No. 03 C 0280, 2003 WL 22220193, at *5 (N.D. Ill. Sept. 24, 2003).

         DISCUSSION

         The notion of fairness lies at the heart of the matter before the Court, and it is seated between two broad principles. The first is that “a preliminary injunction is an exercise of very far-reaching power, never to be indulged in except in a case clearly demanding it.” Girl Scouts of Manitou Council, Inc. v. Girl Scouts of U.S. of Am., Inc., 549 F.3d 1079, 1085 (7th Cir. 2008) (citation omitted); see Winter v. Nat. Res. Def. Council, Inc., 555 U.S. 7, 22 (2008) (maintaining that injunctive relief is “an extraordinary remedy that may only be awarded upon a clear showing that the plaintiff is entitled to such relief”). The second stems from fostering competition, particularly in the realm of intellectual property, as “consumers benefit from competing products in the marketplace, [therefore] we often want to encourage copying of products or features of products which are not protected under the patent and copyright laws.” Lacour v. Time Warner, Inc., No 99 C 7105, 2000 WL 688946, at *5 n.6 (N.D. Ill. May 24, 2000) (citation omitted). We begin with “[t]he threshold consideration in a motion for a preliminary injunction, ” which “is the moving party's likelihood of success on the merits of the underlying claim.” Platinum, 149 F.3d at 726. We disagree with Magistrate Judge Cox's conclusion that LHO “is likely to succeed on the merits” in proving that “Hotel Chicago” is entitled to protection, which is fatal to their request for a preliminary injunction.

         I. LHO's Likelihood of Success on the Merits

         “In the trademark . . . field, the movant shows a likelihood of success by establishing that 1) [it] has a protectable mark, and 2) that a ‘likelihood of confusion' exists between the marks or products of the parties.” Meridian Mut. Ins. Co. v. Meridian Ins. Grp., Inc., 128 F.3d 1111, 1115 (7th Cir. 1997); see Ty, Inc., 237 F.3d at 897 (quoting Int'l Kennel Club of Chi., Inc. v. Mighty Star, Inc., 846 F.2d 1079, 1084 (7th Cir. 1988)). The Seventh Circuit has consistently held that “a ‘likelihood of success' exists if the party seeking injunctive relief shows that it has a ‘better than negligible' chance of succeeding on the merits.” Meridian, 128 F.3d at 1114; see Int'l Kennel Club, 846 F.2d at 1084. “This is an admittedly low requirement, and is simply a threshold question.” Girl Scouts, 549 F.3d at 1096.

         In concluding that LHO “is likely to succeed on the merits, ” Magistrate Judge Cox decided that it has a “better than negligible chance” of proving that: (i) LHO is the owner of “Hotel Chicago;” (ii) it has priority over the mark; (iii) “Hotel Chicago” is not generic, which would mean that it is not entitled to protection; (iv) instead, it is descriptive; (v) it has acquired secondary meaning in the marketplace, rendering the descriptive mark protectable; and (vi) the mark is likely to cause confusion among consumers. Although Magistrate Judge Cox believed that “‘Hotel Chicago' will likely be found to be descriptive, ...


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