Lorillard Tobacco Co. v. R.J. Reynolds Tobacco Co.
| Decision Date | 08 August 2011 |
| Docket Number | 10 CVS 11471 |
| Citation | 2011 NCBC 30 |
| Court | Superior Court of North Carolina |
| Parties | LORILLARD TOBACCO COMPANY and LORILLARD LICENSING COMPANY, LLC, Plaintiffs, v. R.J. REYNOLDS TOBACCO COMPANY, Defendant. |
Brooks, Pierce, McLendon, Humphrey & Leonard, LLP, by Jim W. Phillips, Jr. and Clint S. Morse, and Locke Lord Bissell & Liddell LLP, by Harry C. Marcus and Jason Nardiello, pro hac vice, for Plaintiffs Lorillard Tobacco Company and Lorillard Licensing Company, LLC.
Kilpatrick Townsend & Stockton LLP, by Daniel R. Taylor, Jr., Adam H. Charnes, and Chad D. Hansen, for Defendant R.J. Reynolds Tobacco Company.
{1} THIS MATTER is before the Court on Plaintiffs' Motion to Dismiss Count III of Counterclaim Pursuant to Rule 12(b)(6) And To Strike Portions of Defendant's Prayer for Relief ("Motion"). For the reasons stated below, the Motion is GRANTED in part and DENIED in part.
{2} The North Carolina Court of Appeals has held that a plaintiff who files an "objectively reasonable" lawsuit cannot be held liable for an unfair trade practice under N.C. Gen. Stat. § 75–1.1 regardless of the plaintiff's subjective intent and even if the suit was instituted for "no legitimate purpose." Reichold Chems., Inc. v. Goel, 146 N.C.App. 137, 157, 555 S.E.2d 281, 293 (2001). The Motion requires the Court to determine whether Count III of Defendant's Counterclaim alleges facts adequate to state a claim for an unfair trade practice that falls within the "sham litigation" exception to the Noerr-Pennington immunity doctrine on which the Reichold opinion rests. That inquiry, in turn, requires the Court to consider whether, accepting the allegations of the Counterclaim as true and allowing all favorable factual inferences from those facts, the Court can and should make that determination as a matter of law without need for further discovery. The controlling ultimate issue is whether Plaintiffs' Complaint is "objectively reasonable." If it is, Plaintiffs' subjective intent in filing the suit is irrelevant, and further inquiry into that intent is not necessary. Plaintiffs contend that the inquiry is pursuant to an objective standard that can be satisfied on the face of the pleadings; Defendant contends that the inquiry necessarily includes fact considerations which must at least await summary judgment.
{3} The controversy centers on the provisions of the "Settlement Agreement, " which was entered into between Plaintiffs Lorillard Tobacco Company and Lorillard Licensing Company, LLC (collectively, "Lorillard") and Defendant R.J. Reynolds Tobacco Company ("RJRT") to resolve inter partes litigation before the United States Patent and Trademark Office ("USPTO") and which relates to the use of the term "pleasure" in connection with the advertisement and sale of tobacco products. The Settlement Agreement provides restrictions on both RJRT's use of the term in some respects and on Lorillard's right to challenge RJRT's use of the term in other respects. The Settlement Agreement by its release language resolved claims regarding uses prior to its effective date. Lorillard complains that RJRT has used the term inconsistently with the Settlement Agreement. RJRT counterclaims that Lorillard has brought a suit it promised not to bring, and that its doing so was a deliberate and willful effort to restrain competition. That is, Count III of RJRT's Counterclaim asserts that the suit is "sham litigation" outside of any protection afforded by the Noerr-Pennington doctrine.
{4} The Motion does not require the Court to determine whether Lorillard may ultimately prevail on the issue of whether RJRT's uses of which it complains are proscribed by the Settlement Agreement. The Court need only decide whether the pleadings demonstrate that Lorillard's claim is objectively reasonable. The Court concludes that it is.
{5} Plaintiffs filed their action in Guilford County Superior Court on November 5, 2010, after which the matter was designated as a Complex Business Case. Plaintiffs assert three claims: 1) breach of contract based on the Settlement Agreement; 2) common law unfair competition; and 3) unfair and deceptive trade practices under N.C. Gen. Stat. Section 75–1.1 ("Section 75–1.1"). On January 10, 2011, RJRT answered and asserted three Counterclaims: 1) Declaratory Judgment seeking to interpret the Settlement Agreement; 2) Breach of Contract by reason of Plaintiffs filing the Complaint in contravention of promises in the Settlement Agreement; and 3) a Section 75–1.1 claim that Lorillard's filing of its Complaint was an unfair trade practice. On May 23, 2011, Lorillard filed its Motion. The Motion has been fully briefed, the Court heard oral argument, and the matter is ripe for disposition.
{6} Lorillard Tobacco Company and Lorillard Licensing Company, LLC are corporations organized and existing under the laws of the State of North Carolina, based in Greensboro, North Carolina. (Countercl. ¶¶ 6–7.) The former manufactures and sells tobacco products, including NEWPORT brand cigarettes; the latter owns all relevant trademark and trade dress rights associated with the NEWPORT cigarette brand. (Id.) RJRT is a corporation organized and existing under the laws of the State of North Carolina, with its principal place of business in Winston-Salem, North Carolina. RJRT2[] is engaged in the business of manufacturing and selling tobacco products, including CAMEL brand cigarettes and CAMEL brand snus, a smokeless tobacco product. (Id. ¶ 5.)
{7} In 2005, Lorillard applied to the USPTO to register the mark, PLEASURE3[] for use in connection with its cigarette products, which application RJRT opposed. (Id. ¶ 13.) In 2007, while Lorillard's application was pending, RII applied to the USPTO to register certain phrases that included the word "pleasure" in connection with smokeless tobacco products, which application Lorillard opposed. (Id. ¶ 14.) The parties resolved this inter partes litigation by the Settlement Agreement with an effective date of July 16, 2009.4[] (Id. ¶ 16.)
{8} The Settlement Agreement provided that RJRT agreed to withdraw with prejudice its opposition to Lorillard's application (Id. ¶ 17), and Lorillard agreed to withdraw with prejudice its opposition to RII's application. (Id. ¶ 18.) The Settlement Agreement had several provisions regarding RJRT's future use of the term "pleasure." RJRT agreed that it "will not use the term PLEASURE alone or in conjunction with any other words as the name of a brand of a tobacco product." (Id. ¶ 19.) RJRT further agreed that it "will not use the term PLEASURE alone in the advertising or promotion of any tobacco product, or in any manner creating a commercial impression associating the term PLEASURE alone with the brand name of a tobacco product." (Id. ¶ 20.) The Settlement Agreement elaborated that "by 'the term PLEASURE alone, ' the Parties mean that RJRT will only use the term PLEASURE as part of a composite phrase and not in a way that creates a commercial impression in the term PLEASURE separate and apart from such composite phrase." (Id. ¶ 21.) The Parties further provided that "[b]y way of example, RJRT will not significantly distinguish the term PLEASURE from other words in a composite phrase in a way that makes the term PLEASURE significantly more prominent than the other words in the composite phrase." (Id. ¶ 22.) The Parties specified an example of an advertisement that would not be permitted because of the comparative emphasis on the term "PLEASURE." (Id. ¶ 23.)
{9} In return for these restrictions on RJRT's use, Lorillard agreed that "[it] will not assert its rights under any registration issuing from the Lorillard PLEASURE Application, or any other alleged federal or state statutory or common law rights in the term PLEASURE alone . . . against: (a) the use by RJRT of any permitted composite phrase incorporating the term PLEASURE . . . ." 5[] (Id. ¶ 24.) Lorillard further released RJRT from any liability for the use of the term "pleasure" up to the date of the Settlement Agreement. (Id. ¶ 25.) RJRT alleges that it has used the term "pleasure" since the Settlement Agreement, but only consistently with the uses permitted by that agreement. (Id. ¶¶ 26-29.) Some of the uses of which Lorillard complains were in use by RJRT before the Settlement Agreement, although Lorillard denies having knowledge of those uses at that time. Particularly, Lorillard catalogs some of RJRT's internet domain and sub-domain names which incorporate the term "pleasure" such as, for example, "camel.tobaccopleasure.com."
{10} Lorillard and RJRT now each contend that the other has breached the Settlement Agreement. Lorillard contends that RJRT has, since the date of the Settlement Agreement, used the term "pleasure" in ways that it undertook not to do by the Settlement Agreement. RJRT contends that it has only used the term as expressly permitted by the Settlement Agreement, and Lorillard has breached the Settlement Agreement by bringing a suit that it promised not to bring. RJRT, in Count II of its Counterclaim, asserts that Lorillard breached its contractual promise not to assert a trademark claim because of an RJRT use permitted by the Settlement Agreement. (Id. ¶ 37.) In Count III, RJRT amplifies its claim by asserting that Lorillard committed an unfair trade practice by deliberately and willfully filing the complaint to stifle competition. (Id. ¶ 46.)
{11} RJRT's prayer for relief seeks punitive damages, treble damages, and attorneys' fees. In addition to its request to dismiss Count III, Lorillard seeks to strike each of these elements of damages from RJRT's prayer for relief. RJRT concedes that the prayers for punitive damages and treble damages depend on Count III of the Counterclaim, but it contends that the prayer for attorneys' fees may be supported by other claims.6[]
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