McDonald's Corp. v. Shop at Home, Inc.
| Decision Date | 02 February 2000 |
| Docket Number | No. 3:99-0438.,3:99-0438. |
| Citation | 82 F.Supp.2d 801 |
| Parties | McDONALD'S CORPORATION, Plaintiff, v. SHOP AT HOME, INC., Sports Collectibles, Inc. and Gary Fillers, Defendants. |
| Court | U.S. District Court — Middle District of Tennessee |
Robert S. Patterson, Julie C. Murphy, Boult, Cummings, Conners & Berry, Nashville, TN, Jeff Lieberman, Robert Eliot Shapiro, Barack, Ferrazzano, Kirschbaum, Perlman & Nagelberg, Chicago, IL, for McDonald's Corporation, plaintiff.
Barbara Jean Moss, Nancy A. Vincent, Wyatt, Tarrant & Combs, Nashville, TN, George J. Phillips, Antioch, TN, for Shop at Home, Inc., defendant.
Randall Chadwell Ferguson, Branstetter, Kilgore, Stranch & Jennings, Nashville, TN, Harold L. North, Jr., Stanley W. Hildebrand, Shumacker & Thompson, Chattanooga, TN, for Sports Collectibles, Inc., Gary Fillers, defendants.
Randall Chadwell Ferguson, Harold L. North, Jr., Stanley W. Hildebrand, (See above), for Classic Collectibles, Inc., defendant.
Sports Collectibles, Inc., Classic Collectibles, LLC., and Gary Fillers purchased a large number of Teenie Beanie Baby toys offered in McDonald's 1999 marketing campaign prior to the toys' release date. The Shop At Home television network then offered those toys for sale, giving consumers an opportunity to get the toy while bypassing the "drive through," or avoiding buying a McDonald's Happy Meal. McDonald's has sought and obtained a preliminary injunction from this court and now seeks damages under state and federal laws. Sports Collectibles, Classic Collectibles and Gary Fillers have filed a Motion for Partial Summary Judgment (Docket No. 58) and the Shop At Home television network has filed a Motion for Summary Judgment (Docket No. 61). The court heard oral argument on these motions on December 20, 1999.
McDonald's seeks recovery from all defendants under 15 U.S.C. § 1125 for unfair competition that damaged the company's goodwill; 15 U.S.C. § 1114 for trademark infringement; the Tennessee Consumer Protection Act for deceptive trade practices that are intended to confuse the public; and Tennessee common law governing unfair competition. The plaintiff also seeks to recover from Sports Collectibles, Classic Collectibles and Gary Fillers for tortious procurement of breach of contract under Tennessee statutory and common law.
All defendants have moved for summary judgment on the state and federal trademark and unfair competition counts of the Complaint. The defendants assert that they are entitled to judgment as a matter of law because the undisputed facts show that they merely re-sold genuine, unaltered McDonald's toys, which does not violate any federal or state trademark or unfair competition laws and is protected by the "first sale doctrine." McDonald's asserts that summary judgment should be denied because the first sale doctrine is inapplicable in this case and because there is a disputed issue of material fact over whether the defendants misused McDonald's trademark.
In May 1999, McDonald's ran a marketing campaign that offered a "Teenie Beanie Baby" toy with the purchase of a Happy Meal. The toys were miniature versions of the wildly popular Ty Beanie Baby, and had been a very successful marketing tool for McDonald's in 1997 and 1998. McDonald's corporation receives monthly payments based upon a percentage of the gross sales from its franchisees, and the toys had brought about a dramatic increase in these sales at the individual restaurants.
The 1999 toy promotion was to release twelve new toys, four each week throughout May, with the final four figures to be released on May 28. (Docket No. 78, Ex. 3, para. 7) It had entered a license agreement with Ty to supply the toys through what McDonald's refers to as its "supply chain." (Docket No. 84, para. 13) Everything from food products to napkins to the 1999 Teenie Beanie Babies are supplied to the franchisees through this supply chain. (Docket No. 80, para. 5) Simon Marketing ("Simon"), The Marketing Store Worldwide ("TMSW"), Perseco Systems Services L.P. ("Perseco") and Hub 1 Logistics are the various companies within the supply chain. ) All of these companies in the supply chain act on behalf of McDonald's, but are independent entities, separate from McDonald's corporate empire. )
Simon and TMSW contracted with Tyapproved factories located in China to manufacture the 1999 Teenie Beanie Babies on behalf of McDonald's Corp and its licensees. ) The toys were individually sealed in plastic bags that carried the statement, (Docket No. 84, para. 17) The toys were packed in boxes and sealed with a licensing agreement called the shrink wrap agreement attached to the outside. (Docket No. 80, para 8) Simon and TMSW paid the Chinese manufacturers for the toys and the two companies took title to the toys. )
Perseco took possession of the toys when they cleared customs. ) Perseco shipped the toys to one of four hub warehouses owned by Hub 1 Logistics. ) Perseco paid Hub 1 Logistics a fee for storing the toys until Perseco shipped the toys to one of 41 distribution centers around the country. (Id.) The distribution centers paid Perseco for the toys and title passed to the distribution centers. ) The distribution centers sent the toys to the individual restaurants. (Id.) Throughout this chain, although McDonald's gave permission for the use of its trademarks, it held neither possession nor title to the toys.
The shrink wrap agreement affixed to the boxes of toys stated that when the franchisees accepted the toy shipments, they were indicating that they agreed to the terms of the shrink wrap agreement. (Docket No. 62, Ex. C) According to the shrink wrap agreement the toys were to be distributed only with food purchases and none of the toys were to be released before their scheduled release date unless the restaurant ran out of the earlier-released figures. (Id.) The agreement prohibited selling more than ten toys with any single food purchase and prohibited selling an entire set of all twelve figures in a single transaction. (Id.) "Title to the intellectual property associated with the Toys is not transferred to you through this License and remains the property of either Ty or McDonald's as applicable," it states. (Id.) It also states:
This License Agreement becomes effective upon your acceptance of the Toys. You may choose not to enter into this License Agreement by returning for credit all Toys delivered to you. This License Agreement will automatically terminate if you, your employees or agents fail to comply with the Condition of Participation. Upon termination for failure to comply, your supply of Toys for the Promotion will be suspended and if there is a Teenie Beanie Baby promotion in the year 2000, your supply of Toys for that promotion will be limited to one case. Additionally, Ty has agreed to buy back a portion of any undistributed Toys.
(Docket No. 62, Ex. C) After the franchisees accepted delivery of the toys, the distribution centers sent invoices of about 57 cents per toy to the restaurants, which they were required to pay in 21 days. (Docket No. 80, para. 15)
As the toys make their way through the distribution chain, McDonald's neither pays nor receives any money in any of the transactions. ) At no point does McDonald's take title to the toys or any of the products that move through the distribution chain. (Docket No. 72, para. 10) McDonald's stated during oral argument that the distribution network runs on oral agreements between the independent companies.
McDonald's acts as franchisor and owner of all intellectual property associated with the restaurants, which are operated as independent businesses by the franchisees. (Docket No. 79, para. 3) The franchisees are allowed to use the McDonald's trademarks under the terms of their franchise agreements, under which they agree to pay McDonald's Corp. a percentage of their gross sales every month. (Docket No. 79, paras. 4-5) By selling the toys "out the back door" instead of to customers with food purchases, franchisees are depriving McDonald's of the profit from the trademarked toy. (Docket No. 79, para. 5) Such sales violate the shrink wrap agreement and the franchise agreement. (Docket No. 79, paras. 6, 10-11) If a franchisee breaches the franchise agreement, McDonald's Corp. has the right to terminate the franchise, thus prohibiting the franchisee from using the McDonald's trademark. (Docket No. 79, para. 6) By violating the shrink wrap agreement, the franchisee runs the risk of being denied access to future Teenie Beanie Baby promotions. (Docket No. 79, para. 10)
Defendant Gary Fillers apparently began purchasing the toys before they were available to the general public and offered them to the Shop At Home network for sale. (Docket No. 23, para. 27) Mr. Fillers used relatives to buy as many toys as they could obtain from the restaurants. (Docket No. 39 at 209-214) In so doing, the relatives made purchases that violated not only the shrink wrap agreement, but also the Franchise Agreement between the franchisees and McDonald's, according to McDonald's. (Docket No. 80, Ex. 6 at 103-110) There were purchases of entire sets, of more than ten toys with a single food purchase and some that were made with no food at all, McDonald's asserts. (Id.) Because McDonald's only made money on the promotion through increased food sales, the corporation did not make any money on the sales that violated the agreements. Mr. Fillers provided about 100 sets of the toys to Shop At Home, which distributed them before the authorized release date. (Id. at 151-52)
Shop At Home began advertising the Teenie Beanie Babies before McDonald's started its own...
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