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VitalGo, Inc. v. Kreg Therapeutics, Inc.

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

March 29, 2017

VITALGO, Inc. and VITALGO SYSTEMS LTD., Plaintiff,
v.
KREG THERAPEUTICS, INC. and CRAIG POULOS, Defendants.

          MEMORANDUM OPINION AND ORDER

          Robert M. Dow, Jr. Judge

         Plaintiffs VitalGo, Inc. and VitalGo Systems Ltd. bring this action against Defendants Kreg Therapeutics, Inc. and Craig Poulos alleging copyright and trademark infringement and unfair competition under federal and state law. Currently before the Court is Defendants' motion to dismiss [18]. For the reasons set forth below, the Court grants in part and denies in part Defendants' motion. Defendants' motion to dismiss [18] is denied as to any claims based on the Kreg Catalyst Bed and granted as to Plaintiffs' remaining claims, without prejudice to Plaintiffs seeking leave to amend VitalGo, Inc.'s counterclaims in the 2011 Lawsuit, Kreg Therapeutics, Inc. v. VitalGo, Inc., No. 11-cv-6771. The present action is set for further status hearing on April 19, 2017 at 9:00 a.m.

         I. Background

         Plaintiff VitalGo, Inc. and Defendant Kreg Therapeutics, Inc. have been engaged in litigation before this Court for a considerable period of time. In fact, that litigation predates the filing of the current suit and is ongoing. The Court will set out the factual and procedural background of this longstanding litigation as it pertains to the current action. See Henson v. CSC Credit Servs., 29 F.3d 280, 284 (7th Cir. 1994) (explaining that a court may take judicial notice of matters in public record, including court documents, in deciding a motion to dismiss without converting it to a motion for summary judgment).

         Plaintiff VitalGo Systems, Ltd. (“VSI”) is a foreign corporation based in Nicosia, Cyprus. VSI designed and developed the “Total Lift Bed, ” a hospital-grade bed that can elevate a patient from lying down to a fully-standing position. Plaintiff VitalGo, Inc. (“VitalGo”) is a Delaware corporation that produces and sells the Total Lift Bed in North America. Defendant Kreg Therapeutics, Inc. (“Kreg”) is an Illinois corporation that provides specialty medical equipment to hospitals and nursing homes. Defendant Craig Poulos is the president of Kreg.

         On or about December 23, 2009, Kreg and VitalGo entered into an agreement (“the Agreement”) pursuant to which Kreg was granted the exclusive right to distribute the Total Lift Bed in certain regions of the country (“the original territories”) in exchange for its agreement to commit to purchase minimum quantities of the bed. Kreg Therapeutics, Inc. v. VitalGo, Inc., 2013 WL 1286681, at *2 (N.D. Ill. Mar. 28, 2013). On April 6, 2010, Kreg and VitalGo executed an amendment (“the Amendment”) to the Agreement, which added additional territories. Id. at *4.

         In April 2011, a consultant emailed Ohad Paz, VitalGo's Managing Director and CEO, notifying him that Poulos was “calling the beds the Kreg bed” and that Kreg was sponsoring a trial of the bed at Johns Hopkins.[1] Id. at *5. Paz responded, “The fact that he is making a study is good for us. Why should we fight it. It is for the Total Lift Bed. We will act when the time is right for us. I am in waiting position.” Paz continued, “The fact he is calling the bed KREG bed is a Joke, as we can decide at any time not to sell him beds and in such case he has no beds.” Id.

         In early May 2011, a vendor e-mailed Paz photographs that the vendor had taken of Kreg's booth at a convention. The vendor noted that “[o]ne of the beds have [sic] different wheels installed, ” and “there was no VitalGo nameplates on the beds at all.” Paz wrote back, “We have problems with the guy. He is making changes with the beds without notifying us, although we told him he must.” Id. at *6.

         On June 2, 2011, Paz sent Poulos an email and letter of notice that the parties' agreements were terminated. In the email, Paz asserted that “the agreements are terminated” because “you did not make any commitment for purchase of our products for 2011, as you should have, in order to keep your exclusivity.” He requested that Kreg “immediately refrain from any further representation in regard to your status as our exclusive distributor in any of the territories.” Id. Meanwhile, Paz was talking with RecoverCare, another medical supply company, to establish an agreement pursuant to which RecoverCare would distribute the Total Lift Beds. Id. On June 2, 2011, Paz emailed a RecoverCare representative indicating that Kreg's exclusivity ended and noting that Kreg “is also in violation of the agreement as [they are] using our trademark and [were] supposed to show us any advertisement [they are] making.” Id.; [2011 Lawsuit, 79-25].

         Poulos responded to Paz's June 2 correspondence via email on June 6, 2011. He noted that he was “disappointed to receive [Paz's] letter” because “[Kreg] has spent countless hours, money and resources to build the reputation, market and to support your products in our exclusive territories where we have introduced your products to our hard-earned loyal clients. [Kreg] never would have made these expenditures and introductions but for the fact that our territories are exclusive and we believed our agreements would continue at least through February 1, 2012.” Poulos averred that Kreg was “willing to agree to commit to future minimum purchases in 2011” if VitalGo were able to update it on “certain latent design issues with the Total Lift Beds” and “the production status of Total Lift Bariatric Beds, ” which the Agreement had contemplated but which had not yet come to fruition. Id. at *7.

         On June 8, 2011, Paz responded to Poulos with a lengthy letter. He reiterated his position that “[t]he two agreements had expired on January 31st and May 31st, respectively, ” and that Kreg had failed to give VitalGo its commitment to purchase additional beds before the January 31, 2011 deadline. Paz also disputed Poulos's allegations that there were design flaws in the Total Lift Bed and contended that Kreg had impermissibly made modifications to the Total Lift Beds without VitalGo's consent. Id.

         On June 15, 2011, VitalGo and RecoverCare issued a press release announcing a “partnership to launch the Total Lift BedTM.” On September 15, 2011, Kreg sent VitalGo a purchase order for five Total Lift Beds. VitalGo declined to fill the purchase order for the beds. Id. at *8.

         A. The 2011 Lawsuit

         On September 26, 2011, Kreg brought suit against VitalGo alleging that Kreg was the exclusive distributor of the Total Lift Beds in the original and additional territories through May 31, 2002 under the Agreement and the Amendment, (collectively “the agreements”), and that VitalGo breached the agreements by claiming in June 2011 that the agreements had expired and thereafter refusing to sell beds to Kreg, (the “2011 Lawsuit”). On October 17, 2011, VitalGo counterclaimed, alleging that Kreg violated the Agreement by making unauthorized alterations to the Total Lift Bed without VitalGo's prior written approval, even after VitalGo demanded that Kreg stop, [2011 Lawsuit, 26 (VitalGo's Answer and Counterclaim), at ¶¶ 19-24], and by failing to obtain VitalGo's approval of all advertisements and promotional materials Kreg used to promote and sell the Total Lift Beds, [id. at ¶¶ 17-18].

         The Court ruled on the parties' cross-motions for summary judgment on Kreg's claim on March 28, 2013. [2011 Lawsuit, 93.] The Court concluded that as to the original territories, Kreg established the first three elements of a claim for breach of contract under New York Law[2]: (1) the existence of a contract, (2) Kreg's own performance, and (3) VitalGo's breach. However, the Court held that Kreg had not demonstrated damages and was thus not entitled to a permanent injunction. Id. at *17. Nevertheless, the Court noted that it could not preclude the possibility that the VitalGo's breach “resulted in the kinds of damages that Kreg anticipated but was not (yet) able to prove, ” and thus Kreg might be entitled to alternative relief. Id. The Court later set a damages bench trial for March 9, 2015. [2011 Lawsuit, 152, 153.]

         As to VitalGo's claim that Kreg violated Paragraph 5 of the Agreement by making unauthorized alterations to the Total Lift Bed without VitalGo's prior written approval, the Court concluded that Kreg did not breach the agreement by altering the beds because nothing in the Agreement or the Amendment prohibited Kreg from doing so. Kreg Therapeutics, Inc. v. VitalGo, Inc., 2013 WL 1286681, at *13. The Court noted that Paragraph 12 of the Agreement prohibits Kreg from using or referring to VitalGo's trademarks and trade names “except as specified in this Agreement or as expressly authorized by Company in writing” but says nothing about altering the beds or referring to them as “Kreg Beds.” Id.

         B. The 2014 Bankruptcy

         However, before damages could be determined at the bench trial, VitalGo filed for bankruptcy in December 2014, causing the 2011 Lawsuit to be stayed. [2011 Lawsuit, 155.] Kreg alleges, and VitalGo does not dispute, that VitalGo filed for bankruptcy to avoid the impending damages trial. [17, at 1; In re VitalGo, Inc, . No. 14-36711 (Bankr. S.D. Fla. Dec. 5, 2014).] On January 23, 2015, VitalGo filed its Summary of Schedules in the bankruptcy case and represented under penalty of perjury that it did not possess any “contingent and unliquidated claims of any nature, including * * * counterclaims of the debtor and rights to setoff claims.” Similarly, in its April 15, 2015 Disclosure Statement, VitalGo stated that it had not identified any causes of action to pursue.

         Shortly after Kreg moved to appoint a Chapter 11 trustee and the bankruptcy court set an evidentiary hearing on Kreg's motion, VitalGo moved for a voluntary dismissal of its bankruptcy, which the bankruptcy court granted in December 2015.[3] On March 24, 2016, this Court reinstated the 2011 Lawsuit and reset the damages bench trial. [2011 Lawsuit, 167.] The bench trial was held on September 26 and 27, 2016 [see 2011 Lawsuit, 214, 215], and a schedule for post-trial briefs will be set as soon as the trial transcripts are available.

         C. The 2016 Lawsuit

On May 25, 2016, VitalGo and VSI filed the current lawsuit asserting claims against Kreg and Poulos for copyright infringement, false designation of origin under the Lanham Act, false advertisement under the Lanham Act, common law trademark infringement, common law unfair competition, violation of the Illinois Uniform Deceptive Trade Practices Act, and violation of the Illinois Consumer Fraud and Deceptive Business Practices Act. [1, at ¶ 2.] Plaintiffs allege that they first began using the VitalGo and Total Lift Bed marks in the United States in 2008. [Id. at ¶ 14.] They further allege that in approximately 2008, they began showing the Total Lift Bed in advertising and marketing materials and that VSI has filed copyright applications for one of its brochures and two digital renderings or pictures of its Total Lift Bed, (collectively, the “Copyrighted Works”). [Id. at ¶¶ 14, 18.]

         Plaintiffs allege that since October 2011, Defendants marketed the Total Lift Bed on their website, in their brochure, in studies, and at conferences as an “Exclusive Kreg Product” or as a “Kreg Bed” and used Plaintiff's Copyrighted Works. [Id. at ¶¶ 29, 36-44, 47, 71, 76.] Plaintiffs further allege that in 2010 or 2011, Defendants began making modifications to Plaintiffs' Total Lift Beds but still advertised the beds as Total Lift Beds. [Id. at ¶¶ 31-35, 77- 79.] Finally, Plaintiffs contend that in 2014, Defendants developed the competing Kreg Catalyst Bed, and until March 2016, promoted the Catalyst Bed using the Total Lift Bed mark and Plaintiff's Copyrighted Works. [Id. at ΒΆΒΆ 67, 80.] Plaintiffs seek, among other forms of relief, ...


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