Delta Air Lines, Inc. v. TDM Investments, LLC
Filing
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MEMORANDUM Opinion and Order: TDM's partial motion to dismiss 13 is granted with respect to Delta's breach of contract claims (Count IV) and tortious interference with contract claims (Count V) and denied with respect to Delta's state and federal trademark claims. Counts IV and V are dismissed without prejudice. Signed by the Honorable Sharon Johnson Coleman on 8/10/2018. Mailed notice.(ym, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
DELTA AIR LINES, INC.
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Plaintiff,
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v.
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TDM INVESTMENTS, LLC d/b/a
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GiftCardSpread.com and JOHN DOES 1-5 )
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Defendant.
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Case No. 18-cv-968
Judge Sharon Johnson Coleman
MEMORANDUM OPINION AND ORDER
The plaintiff, Delta Air Lines, Inc. (“Delta”), brings this action against TDM Investments,
LLC (“TDM”), alleging that TDM engaged in trademark infringement, unfair competition,
tarnishment of a famous mark, breach of contract, tortious interference with contract, and violations
of the Illinois Uniform Deceptive Trade Practices Act. TDM now moves this Court to dismiss
Delta’s breach of contract and tortious interference claims and to dismiss Delta’s trademark claims
based on its use of Delta’s corporate logo (as opposed to its use of the Delta Skymiles logo, which is
not at issue in this motion). For the following reasons, TDM’s motion to dismiss [13] is granted in
part and denied in part.
Background
The following factual allegations from the complaint are taken as true. Delta is an airline
company which uses various trademarks to identify itself and its services, including its Sky Miles
loyalty program. Among other things, Delta uses its trademarks to sell physical gift cards and
electronic gift codes. Delta’s sales of gift cards and gift codes are subject to terms and conditions
which state, in pertinent part, “eGifts and Cards may only be sold by Delta and Delta - licensed
vendors. eGifts and Cards that are for sale or sold by unlicensed vendors are subject to confiscation
or voiding by Delta.”
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TDM buys gift cards from recipients seeking to obtain cash value for their gift cards. TDM
then resells the gift cards that it obtains. Among other products, TDM sells Delta gift cards and gift
codes. In connection with these sales, TDM has displayed Delta’s trademarks, including the Sky
Miles symbol, which the parties appear to agree is unrelated to Delta’s gift cards. TDM’s website
also links to Delta’s website so that customers can confirm the authenticity of the Delta gift cards
and gift codes that it sells.
When Delta discovered TDM’s use of its marks, it requested that TDM stop using its marks
and reselling its gift cards. TDM removed the Sky Miles logo from its website but continued to use
Delta’s other marks in advertising the Delta gift cards listed on its website. This litigation followed.
Legal Standard
A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the legal
sufficiency of the complaint, not the merits of the allegations. The allegations must contain
sufficient factual material to raise a plausible right to relief. Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 569 n.14, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Although Rule 8 does not require a plaintiff
to plead particularized facts, the complaint must assert factual “allegations that raise a right to relief
above the speculative level.” Arnett v. Webster, 658 F.3d 742, 751–52 (7th Cir. 2011). When ruling
on a motion to dismiss, the Court must accept all well-pleaded factual allegations in the complaint as
true and draw all reasonable inferences in the plaintiff’s favor. Boucher v. Fin. Sys. of Green Bay, Inc.,
880 F.3d 362, 365 (7th Cir. 2018).
Discussion
Lanham Act
TDM first contends that Delta’s trademark infringement, unfair competition, and
tarnishment claims must be dismissed because TDM’s use of Delta’s marks to sell Delta gift cards
and gift codes is protected under the first sale doctrine.
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The first sale doctrine limits trademark owners’ Lanham Act right to control the distribution
of their products. Hart v. Amazon.com, Inc., 191 F. Supp. 3d 809, 817–18 (N.D. Ill. 2016) (Castillo, J.).
Under the first sale doctrine, the right of a producer to control the distribution of its trademarked
product terminates after the first sale of the product, unless one of several well-defined exceptions
to the first sale doctrine applies. Id. at 818. (quoting Sebastian Int’l, Inc. v. Longs Drug Stores Corp., 53
F.3d 1073, 1074 (9th Cir. 1995)). Thus, under the first sale doctrine the buyer of a trademarked
product may resell that product under the original mark without incurring liability for trademark
infringement or unfair competition
Delta argues that the first sale doctrine does not apply here because TDM’s conduct falls
within the sponsorship exception to the first sale doctrine. Under the sponsorship exception, the
first sale doctrine’s protections do not extend to resellers who use other entities’ trademarks to give
the false impression that they are favored or authorized dealers for a product. Australian Gold, Inc. v.
Hatfield, 436 F.3d 1228, 1241 (10th Cir. 2006) (citing D 56, Inc. v. Berry’s Inc., 955 F. Supp. 908, 910–
20 (N.D. Ill. 1997) (Coar, J.)). Thus, use of a plaintiff’s trademark in promotional materials such as
advertising or displays is not protected by the first sale doctrine, but use of a plaintiff’s trademark
solely to identify a product being sold is protected by the first sale doctrine. D 56, Inc., 908 F.3d
919–920.
Here, Delta does not allege that TDM used its trademarked materials in advertising content
or other promotional materials beyond identifying the products listed on its website. Instead, Delta
argues that TDM’s sale of Delta products and use of its marks creates an implication that it is an
authorized dealer of the products because Delta’s terms and conditions for the gift cards at issue
provides that “eGifts and Cards may only be sold by Delta and Delta- licensed vendors.” The
Court, however, can see no mechanism by which Delta’s terms and conditions could alter the legal
nature of TDM’s use of Delta’s marks. Delta has not alleged that TDM’s customers had knowledge
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of or access to Delta’s terms and conditions, and Delta has offered no case law suggesting that a
trademark holder’s statements or contracts are relevant considerations when applying the
sponsorship exception. The Court therefore concludes that the sponsorship exception does not
apply here.
Delta alternatively contends that the first sale doctrine does not apply under the material
differences exception. The material difference exception provides that the first sale doctrine does
not apply to products that have been materially altered from their original form. An alteration is
material if it changes something about a product that is relevant to consumers’ decision to purchase
the product. Davidoff & CIE, S.A v. PLD Intern. Corp., 263 F.3d 1297, 1302 (11th Cir. 2001); see also
Beltronics USA, Inc. v. Midwest Inventory Distrib., LLC, 562 F.3d 1067, 1073 (10th Cir., 2009).
Delta asserts that TDM’s gift cards and gift codes are materially different because TDM
offers different terms and conditions of purchase. At least some courts have recognized that
changes that alter consumer’s ability to avail themselves of a manufacturer’s technical support and
customer service programs are material differences. SoftMan Prods. Co., LLC v. Adobe Sys., Inc., 171
F. Supp. 2d 1075, 1093 (C.D. Cal. 2001). As the plaintiff, however, it is not Delta’s obligation to
anticipate and allege facts to defeat possible affirmative defenses such as the first sale doctrine.
Accordingly, it is premature for this Court to determine the applicability of the material differences
exception to this case. See U.S. v. Lewis, 411 F.3d 838, 842 (7th Cir. 2005) (recognizing that plaintiffs
are not required to allege facts sufficient to defeat affirmative defenses in their complaint).
TDM’s motion to dismiss Delta’s Lanham act claims is therefore denied. Because Delta’s
Illinois claims for unfair competition, trademark infringement, and violation of the Illinois Uniform
Deceptive Trade Practices act are subject to the same analysis as Delta’s federal trademark claims,
TDM’s motion to dismiss those claims is also denied. Desmond v. Chicago Boxed Beef Distribs., Inc., 921
F. Supp. 2d 872, 884 (N.D. Ill. 2013) (Castillo, J.); Trans Union LLC v. Credit Research, Inc.,
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142 F. Supp. 2d 1029, 1038 (N.D. Ill. 2001) (Moran, J.).
Breach of Contract
TDM also contends that Delta has failed to state a claim for breach of contract because
Delta and TDM do not have a contractual relationship. Delta argues that TDM is in privity of
contract with the original purchasers of Delta’s gift cards and is therefore bound by the contract’s
provisions. In support of this proposition, Delta relies exclusively on Green v. Charter One Bank,
N.A., No. 08 C 1684, 2010 WL 1031907 (N.D. Ill. Mar. 16, 2010) (Gottschall, J.). In Green, the
court was called upon to determine which parties involved in a gift card transaction were
“customers” within the meaning of the National Banking Act. The court found that both the
purchaser of the gift card and the ultimate user of the gift card were customers within the meaning
of the regulations because the purchaser obtained a product (the gift card) from the bank and the
end user obtained a service from the bank by using the gift card to pay for a purchase. Id. at 2.
TDM, however, was neither the purchaser nor the end-user of the gift cards at issue and therefore
would not be a “customer” within the scope of Green. Delta has accordingly failed to establish that
it has an enforceable contract with TDM for which it can state a breach of contract claim.
Tortious Interference
Delta’s tortious interference with a contract claim arises from the provision in Delta’s gift
card terms and conditions providing that “eGifts and Cards may only be sold by Delta and Deltalicensed vendors.” TDM contends that this provision is an improper restraint on the alienation of
chattels and that the terms and conditions in question are therefore void. See Kirtsaeng v. John Wiley
& Sons, Inc., 568 U.S. 519, 539, 133 S.Ct. 1351, 185 L.Ed.2d 392 (2013) (describing the first sale
doctrine as a common-law principle designed to prevent restraints on the alienation of chattels).
Conceding that Illinois law clearly disfavors restraints on the alienation of personal property, Delta
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argues that Illinois law does not similarly prohibit restraints on assignments and that restrictions on
resale should therefore also be permissible. Delta offers no law or argument to support the latter
proposition, and the caselaw that Delta relies on is inapposite because it exclusively concerns the
assignment of settlement agreements under a specific provision of Illinois insurance law. See, e.g.,
Shaffer v. Liberty Life Assur. Co. of Boston, 746 N.E.2d 285, 293, 319 Ill.App.3d 1048 (2001); In re Nitz,
739 N.E.2d 93, 104, 317 Ill.App.3d 119 (2000). Delta’s arguments concerning the Bank Secrecy Act
are similarly unavailing; although that Act and its implementing regulations impose record-keeping
requirements on the original issues of gift cards, Delta has identified nothing to suggest that the Act
is meant to discourage or prohibit the resale of gift cards.
Delta has accordingly failed to establish that the contractual language at issue is not an
improper restraint on the alienation of chattels. Absent such a showing, the Court is obligated by
Illinois law to conclude that the provision at issue is void, and to therefore conclude that Delta
cannot state a claim for tortious interference with a contract based on that provision.
Conclusion
For the above reasons, TDM’s partial motion to dismiss [13] is granted with respect to
Delta’s breach of contract claims (Count IV) and tortious interference with contract claims (Count
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V) and denied with respect to Delta’s state and federal trademark claims. Counts IV and V are
dismissed without prejudice.
IT IS SO ORDERED.
Date: 8/10/2018
Entered: _____________________________
SHARON JOHNSON COLEMAN
United States District Court Judge
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