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Ariel Investments, LLC v. Ariel Capital Advisors LLC

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

March 3, 2017



          MATTHEW F. KENNELLY United States District Judge

         Ariel Investments, LLC sued Ariel Capital Advisors LLC, alleging trademark infringement, unfair competition, and cybersquatting in violation of the Lanham Act and unfair trade practices in violation of the Illinois Deceptive Trade Practices Act and Illinois common law. Ariel Capital raised several affirmative defenses and asserted three counterclaims against Ariel investments. Both parties moved for summary judgment. The Court denied Ariel Investments' motion in its entirety and granted summary judgment for Ariel Capital on the cybersquatting claim but otherwise denied Ariel Capital's motion. Ariel Invs., LLC v. Ariel Capital Advisors LLC, No. 15 C 3717, 2017 WL 319251 (N.D. Ill. Jan. 21, 2017). Prior to trial, Ariel Capital withdrew its counterclaims. The Court conducted a bench trial on the remaining claims on February 6-8, 2017. This decision constitutes the Court's findings of fact and conclusions of law.


         I. Ariel Investments

          Ariel Investments is an investment management company headquartered in Chicago, Illinois. The company is a registered investment advisor with the Securities and Exchange Commission (SEC). Mellody Hobson, the president of Ariel Investments, testified that the company offers both separate accounts and mutual funds for individuals and institutional clients. Separate accounts consist of a stock portfolio, managed by Ariel Investments, containing assets owned entirely by a single client. Hobson testified that Ariel Investments requires a targeted minimum of $10 million to open a separate account but frequently makes exceptions, sometimes going as low as several hundred thousand dollars. Because of this high minimum, Ariel Investments separate accounts usually are not available to retail investors. The company has hundreds of separate account clients. Mutual fund accounts, in contrast, involve the pooling of client assets. Ariel Investments has hundreds of thousands of mutual fund clients. On its website, Ariel Investments refers to both its separate accounts and its mutual funds as products. Between its separate account and mutual fund clients, the company has clients in all fifty states. Merrillyn Kosier, chief marketing officer for the company's mutual funds, testified that Ariel Investments does not prepare tax returns for its client, nor does it draft wills. Kosier testified at one point that whether the company prepares a financial plan for its investors depends on the circumstances. She also testified that the company does not prepare written financial plans for its clients.

         John Rogers, the company's current chief investment officer, founded Ariel Investments in 1983. The company was originally called Ariel Capital Management Inc. In November 1986, the company introduced its first mutual fund, the Ariel Growth Fund. The company adopted its current name, Ariel Investments, in 2008. In order to protect its brand, Ariel Investments registered a number of trademarks beginning in 1984. These include ARIEL, ARIEL INVESTMENTS, ARIEL FUND, ARIEL ABCS OF MONEY, ARIEL INTERNATIONAL FUND, ARIEL GLOBAL FUND, ARIEL DISCOVERY FUND, ARIEL FOCUS FUND, and ARIEL APPRECIATION FUND, referred to collectively as the "Ariel Marks." Some of these marks, including ARIEL, have become incontestable under the Lanham Act.

         Over the years, Ariel Investments has employed a number of strategies to attract customers. it solicits clients directly and also receives referrals. Hobson testified that Ariel Investments spends anywhere from half a million to a couple million dollars on advertising each year. It has advertised in industry publications such as Investment Advisor, Pensions and Investments, and Kiplinger, as well as general publications such as the Wall Street Journal and the New York Times. These ads typically include the word "Ariel" in all capital letters, the word "Investments" in smaller print below, a distinctive swirl underneath both words, and sometimes-but not always-an image of a turtle. When the company advertises, it does so only with the Ariel Investments name; it does not advertise under its former name. Ariel Investments also sponsors a number of industry conferences. In 2008 and 2010, it sponsored a number of Schwab regional conferences throughout the United States. Ariel Investments also sponsors community events, such as plays and athletic competitions, and it makes charitable contributions in the company's name.

         Hobson testified that Ariel Investments considers as its competition all other investment firms. In order to evaluate its progress, Ariel Investments periodically surveys the advisors who use (or might in the future use) the company's mutual funds. The surveys are called "turtle talk" surveys. In the 2016 turtle talk survey, respondents were asked to list the three firms they perceived to be most like Ariel Investments. The most common responses, in order, were Vanguard, Fidelity, Parnassus Investments, Calvert Investments, PAX World Investments, and T. Rowe Price. Kosier testified that respondents viewed the "Wal-Marts" of the financial industry as Ariel Investments' competitors. In the 2015 turtle talk survey, respondents were again asked to list three firms that they perceived to be most like Ariel Investments. The top three responses were Calvert, PAX, and Parnassus. When respondents were asked to select a word that best summarizes what is least attractive about Ariel Investments, the most common response was "unknown / small size." Ariel Investments listed as a key takeaway that advisors already invested in the company wished that it had more brand awareness among consumers. Further, when respondents were asked to indicate their degree of familiarity with Ariel Investments' philanthropic initiatives, over sixty percent of respondents stated that they were not familiar with these efforts.

         Because of its concern for client trust, Ariel Investments tries to police use of the Ariel Marks. Hobson testified that when Ariel Investments learns of other investment services companies using its name, it generally sends a cease and desist letter. Mareile Cusack, general counsel for Ariel Investments, confirmed this procedure. Ariel Investments offered into evidence six letters it sent to various entities using "Ariel" in their name. Both Hobson and Cusack also recalled a specific incident in which a company calling itself Ariel Fund refused to stop using the name. That company was later tied to Bernard Madoff's fraudulent scheme. Numerous publications wrote about Madoff and those associated with him, including Ariel Fund. As a result, numerous clients of Ariel Investments called the company out of concern that it was associated with Madoff. Ariel Investments had to reach out to each publication to ask them to include a disclaimer alongside references to Ariel Fund that it was not associated with Ariel Investments in Chicago.

         Hobson testified that she recently became aware of another company named Ariel Wealth Advisors that is located in New Jersey and performs wealth management services. She also learned around that time that others at Ariel Investments were already aware of Ariel Wealth Advisors. Cusack testified that sometime in 2009, one of Ariel Investments' junior salespeople met with Kevin Gibney, the owner of Ariel Wealth Advisors. This salesperson developed a relationship with Gibney, who then occasionally referred clients to Ariel Investments. Once Hobson and Cusack became aware of Ariel Wealth Advisors around 2014, Ariel Investments contacted the company. Cusack testified that, although Ariel Investments does not approve of Ariel Wealth Advisors' use of its name, it has not sent a cease and desist letter to Ariel Wealth Advisors because instead the two companies have been discussing a potential licensing agreement. In June 2016, Ariel Investments received a letter from Ariel Wealth Advisors that provided a general summary of the services that it provides to its clients. This list includes tax and estate planning, cash flow and retirement planning, life insurance planning, and investment advising.

         II. Ariel Capital

         Christopher Bray founded Ariel Capital Advisors in January 2014. Prior to founding Ariel Capital, Bray worked in the financial industry at Deloitte, National City Bank, and Willow Street Advisors. Bray considered a variety of names for his new financial company. Bray wanted to use the word "Ariel" because it is both the name of his daughter and the name of a ministry with which he and his wife work. Bray also liked the word's symbolism, as it is a Hebrew word meaning lion of God. He and his wife created a list of thirty-one possible names for his firm, five of which included the word "Ariel." Bray originally wanted to name his firm Ariel Wealth Advisors. He ran a Google search for this name and discovered Ariel Wealth Advisors (discussed above), located in New Jersey and using a lion in its logo. Bray then decided to select a different name. He ran a Google search for "Ariel Capital Advisors." Bray testified that he did not find any other company using that name. Bray also performed a search for this name with the Florida Secretary of State. Bray estimates that his search turned up a list of over one hundred entities in Florida whose name contained "Ariel, " none of which were named Ariel Capital Advisors.

         Ariel Capital is headquartered in Naples, Florida and is described as a multistate private wealth management firm. The company is a registered investment advisor with the SEC, and its website states that the company provides customized investment management. The company has only one other office, in Cleveland, Ohio, but Bray is interested in expanding. Ariel Capital has six employees, including Bray, and it serves clients in twelve states and Washington, D.C. Bray is the managing director of Ariel Capital and is solely responsible for the company's marketing. As of March 2016, Ariel Capital had sixty-five client relationships. Bray testified that approximately sixty of Ariel Capital's sixty-five client relationships came over with him from Willow Street Advisors after he contacted them to say he was starting a new firm. The remaining five clients came as referrals from these sixty clients. A client relationship can be an account of a single individual, or it can be accounts for multiple individuals, typically within the same family. Ariel Capital requires a minimum investment of $1 million. Clients can reach this minimum individually or, in the case of a family account, cumulatively.

         Bray testified that Ariel Capital sells its clients only advice, not "things." It provides services such as investment management, estate planning, income tax planning, retirement planning, stock option plans for corporate executives, and general financial planning. In forms submitted to the SEC, Ariel Capital listed as one of its services the creation of portfolios for its clients. It also listed types of investments that the portfolio might contain and included mutual funds. Bray testified that, when Ariel Capital manages a client's portfolio, it uses only individual stocks and individual bonds. Bray testified that Ariel Capital does not use mutual funds. The only time that it deals with mutual funds is when a new client brings over a portfolio that already contains an investment in a mutual fund. In those situations, Bray testified, Ariel Capital recommends eliminating the mutual fund investment. Bray testified that the company lists mutual funds on the forms it submits to the SEC only to encompass those clients who come to the company with mutual funds already in their portfolios.

         Ariel Capital occasionally runs print ads in various publications, such as Crain's Cleveland Business. These ads typically include the words "Ariel Capital" in blue letters with "Advisors, LLC" in smaller, gray letters underneath. These words are accompanied by a white and blue image of a lion within a blue shield. Ads for Ariel Capital frequently appear in industry publications, particularly supplements on estate planning. They occasionally appear alongside articles authored by Bray. Bray testified that Ariel Capital does not advertise to get new clients and that the purpose of its advertising was merely to gain credibility. As discussed later, the Court did not find this testimony credible.

         III. The trademark dispute

         Ariel Investments learned of Ariel Capital in the summer of 2014. In August of that year, counsel for Ariel Investments sent a cease and desist letter to Bray asking Ariel Capital to cease use of its company name and internet domain name. Ariel Investments indicated that it believed Bray was infringing on its registered trademarks and internet domain name and was concerned that consumers would confuse the two companies.

         Bray testified at trial that he first learned of Ariel Investments from this letter. He further testified that he had never seen advertisements for Ariel Investments prior to starting Ariel Capital. Ariel Investments introduced evidence of its e-mail blasts, which Ariel Investments regularly sends out to a number of contacts in the financial industry, including friends and family, financial advisors, and separately managed clients and their consultants. One particular e-mail highlighted an article in USA Today that discussed Ariel Investments as a prominent fund group. The e-mail contained Ariel Investment's logo, a quote from the article, and a link to view the article. Ariel Investments sent this e-mail to 11, 000 addresses, including, Bray's e-mail address before he started Ariel Capital. Roger Schmitt, who is responsible for data and infrastructure at Ariel Investments, testified that e-mail analysis showed that the address opened the e-mail. Ariel Investments also introduced a list of attendees of the 2010 Schwab conference in Atlanta, sent to Ariel Investments about ten days prior to the event, which listed Bray as an attendee. Schmitt acknowledged that the list was of those who registered for the conference, and not necessarily those who attended.

         Citing concern for consumer confusion between the two companies, Ariel Investments brought suit against Ariel Capital in April 2015, asserting trademark infringement, unfair competition, deceptive trade practices, and cybersquatting. Because of this, Bray asked his employees about any instances of confusion between Ariel Capital and Ariel Investments. One employee, Chris Squittieri, told Bray about a conversation he had with Justin Land. In April 2015, Squittieri attended a meeting of the Chartered Financial Analyst (CFA) Society of Naples where he spoke with Land, another CFA. Squittieri told Bray that Land asked him whether Ariel Capital had any affiliation with Ariel Investments.

         Bray also received an e-mail in February 2016 from Marcie Rebardo, who is responsible for office management at Ariel Capital, about a phone call that she had just received. Rebardo testified that the male caller asked to speak to Cheryl Hagen, and Rebardo told the caller that no one at Ariel Capital went by that name. Rebardo testified that the caller asked, "Is this Ariel Investments?" When Rebardo said no, the caller hung up. The caller's telephone number was 908-400-8730. In a deposition prior to trial, David Boone testified that this is the phone number for his cellphone. Boone testified that he owns and runs TechSmart Trader, a digital publication that covers the trading industry. Boone stated that, in making the February 2016 phone call, he was trying to reach Cheryl Cargie, a trader at Ariel Investments, to speak to her about an article and advertising in his publication. He further testified that he would have found the number that he called by performing a Google search for "Ariel" or "Ariel Capital." During his deposition, Boone was also asked whether he was familiar with Ariel Capital. He testified that he has known Ariel Capital for about ten years and that the company is headquartered in Chicago. Boone then stated that, prior to this lawsuit, he did not know that there was a difference between Ariel Investments and Ariel Capital and would have believed them to be the same.

         Bray also testified about one of his clients named Monica Schandel, a certified financial planner and the owner of Blue Oceans Financial Planning. Schandel is a client of Ariel Capital and a personal friend of Bray's for twenty-five years. Her firm also shares a client in common with Ariel Capital. Bray testified that Schandel has never asked him about the relationship between Ariel Capital and Ariel Investments, nor has she asked about buying mutual funds for herself or her clients. In May 2016, Schandel received a letter from counsel for Ariel Investments. In her reply e-mail, Schandel stated that she has one joint client with Ariel Investments. In her deposition prior to trial, Schandel was asked where Ariel Investments is headquartered and she responded that she believed it was Naples, Florida. She was also asked whether she knew any employees of Ariel Investments. She named Bray, Squittieri, and Wilmore. When Schandel was asked when she first learned of Ariel Investments, she said she first learned of it when Bray told her she was dissolving his old partnership and starting a new company. When asked about her business relationship with Ariel Investments, Schandel responded that she was confused and might have used names in the wrong capacity. Schandel went on to clarify that she has a relationship with Ariel Capital, Bray, and Squittieri. Schandel also stated that, in her e-mail to Ariel Investments' counsel, she intended to refer to Ariel Capital and not Ariel Investments.

         Phyllis Brady, vice president of human capital and public affairs at Ariel Investments, also testified about a phone call that she had received. In March 2015, an unidentified female called Brady and asked to check the employment references of a particular individual. Brady testified that she looked up the name provided and discovered that the individual did not work at Ariel Investments. Brady told the caller this, who said that she thought she was speaking to Ariel. Brady asked if she meant Ariel Investments in Chicago, and the caller responded that she was actually looking for an Ariel in Naples, Florida.

         Ariel Capital introduced evidence that an August 2016 search for the term "Ariel" on the website of the Illinois Secretary of State generated a list of close to fifty companies registered in Illinois. Further, Bray testified that at the time he was forming Ariel Capital, he ran a search on the Florida Secretary of State website for companies registered with the name Ariel. Bray testified that the search turned up well over a hundred businesses registered in Florida containing the word "Ariel." Ariel Capital provided the Court with the results from a similar search run in February 2017. Ariel Investments stipulated that it has not sent cease and desist letters to any of the companies on that list, with the exception of Ariel Capital. Cusack also testified that there are many ...

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