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Heartland Consumer Products LLC v. Dineequity, Inc.

United States District Court, S.D. Indiana, Indianapolis Division

January 18, 2018

HEARTLAND CONSUMER PRODUCTS LLC, and TC HEARTLAND LLC, Plaintiffs,
v.
DINEEQUITY, INC., APPLEBEE'S SERVICES, INC., IHOP FRANCHISING LLC, INTERNATIONAL HOUSE OF PANCAKES, LLC, IHOP FRANCHISOR LLC, APPLEBEE'S FRANCHISOR LLC, and APPLEBEE'S RESTAURANTS LLC, Defendants.

          ORDER ON MOTION TO DISMISS

          SARAH EVANS BARKER, JUDGE

         This matter is before the Court on Defendants' DineEquity, Inc. (“DineEquity”), Applebee's Restaurants, LLC (“Applebee's”), Applebee's Services, Inc. (“Applebee's Services”), Applebee's Franchisor, LLC (“Applebee's Franchisor”), International House of Pancakes, LLC (“IHOP”), IHOP Franchising, LLC (“IHOP Franchising”), IHOP Franchisor, LLC (“IHOP Franchisor”) (collectively, the “Defendants”) Motion to Dismiss jointly filed pursuant to Federal Rule of Civil Procedure 12(b)(6). Dkt. No. 15. Defendants argue that Plaintiffs' Heartland Consumer Products LLC and TC Heartland LLC (collectively, “Heartland”) Complaint alleging trademark infringement, false designation of origin, unfair competition, and trademark dilution should be dismissed because the yellow color used by Heartland for packaging its sucralose sweetener serves a functional purpose and is therefore not protectable under trademark law. Dkt. No. 16 at 6-8. Additionally, Defendants contend that Heartland's Complaint warrants dismissal because Heartland failed to provide each of the Defendants sufficient notice of the claims asserted against them, as required by Federal Rule of Civil Procedure 8, and because several of the Defendants are improper parties to this litigation. Dkt. No. 16 at 8-14. Heartland opposes the Motion to Dismiss. Dkt. No. 19. For the reasons explained below, we DENY Defendants' Motion to Dismiss.

         Factual Background

         Splenda® is a sucralose-based sugar substitute that first became available in the United States in September 2000. Dkt. No. 1, ¶¶ 21-22. Within three years of its initial launch in the United States, Splenda® became the leading low-calorie sweetener in the retail and food service industries. Dkt. No. 1, ¶ 22. Today, Splenda® is available in more than 80 countries and is consumers' most preferred low-calorie sweetener in the United States. Dkt. No. 1, ¶ 22.

         On September 25, 2015, Heartland purchased the Splenda® brand from McNeil Nutritionals, LLC, a subsidiary of Johnson & Johnson Consumer, Inc. Dkt. No. 1, ¶ 23. Through this transaction, Heartland acquired ownership of several standard character and design trademarks pertaining to the Splenda® brand that were either registered or pending registration through the United States Patent and Trademark Office (“USPTO”) (the “Splenda Trademarks”).[1] Dkt. No. 1, ¶ 29. Several of the design Splenda Trademarks specifically claim the well-known yellow background color used for packaging individual Splenda® packets as a protected trademark feature. Dkt. No. 1, ¶ 31; Trademark Electronic Search System (TESS), United States Patent and Trademark Office (January 17, 2018, 3:47 AM), http://tmsearch.uspto.gov/bin/gate.exe?f=tess&state=4805:ah09k6.1.1.

         DineEquity is a parent corporation that owns and operates Applebee's and IHOP restaurants. Dkt. No. 1, ¶¶ 11, 15. Before Heartland acquired the Splenda Trademarks, DineEquity purchased Splenda® through Diamond Crystal Brands, Inc. (“Diamond Crystal”), a distributor that received Splenda® directly from Johnson & Johnson, Inc. Dkt. No. 1, ¶ 35. At some point between 2009-2013, DineEquity stopped purchasing Splenda® from Diamond Crystal. Dkt. No. 1, ¶ 36. Instead, DineEquity began packaging a lower-quality sucralose sweetener made in China (the “Non-Splenda Sweetener”) in yellow packets similar to those used for packaging Splenda® and distributed them to Applebee's and IHOP restaurants in their franchise network with the intent “to palm off the goodwill and association of the yellow packet” linked to genuine Splenda®. Dkt. No. 1, ¶¶ 37, 46.

         In addition to distributing the Non-Splenda Sweetener packets to Applebee's and IHOP franchisee restaurants, Defendants allegedly misrepresented to the franchisee restaurants and their customers that the Non-Splenda Sweetener packets contained genuine Splenda®, thereby creating confusion among the Applebee's and IHOP customers. Dkt. No. 1, ¶¶ 37-41. As evidence of such confusion, Heartland received multiple reports from Applebee's and IHOP customers, complaining that they were unsure what sweetener they received while dining at Applebee's and IHOP restaurants and that they believe that Splenda® is of a lesser quality than they have come to expect after consuming the Non-Splenda Sweetener. Dkt. No. 1, ¶ 44.

         Furthermore, Heartland conducted its own investigation into Defendants' misrepresentations relating to Splenda®. Dkt. No. 1, ¶ 45. Heartland hired investigators to travel to several randomly selected Applebee's and IHOP franchisee and corporate restaurants across the country. Dkt. No. 1, ¶ 45. While at the restaurants, the investigators asked the restaurant staffs for Splenda® and documented their responses. Dkt. No. 1, ¶ 45. In twenty of the twenty-eight Applebee's franchisee restaurants visited, and in twenty-six of the thirty-four IHOP franchisee restaurants visited, restaurant staff members affirmatively represented that the Non-Splenda Sweetener was actually Splenda®. Dkt. No. 1, ¶ 45. Additionally, the staffs from a majority of the corporate IHOP restaurants visited similarly represented that the Non-Splenda Sweetener was genuine Splenda®. Dkt. No. 1, ¶ 45.

         On April 3, 2017, in light of the customer confusion created by Defendants' use of Non-Splenda Sweetener, Heartland initiated this action seeking damages and injunctive relief based on claims of trademark infringement, false designation of origin, unfair competition, and trademark dilution. See generally, Dkt. No. 1. In its Complaint, Heartland asserts that DineEquity, Applebee's, Applebee's Franchisor, IHOP, IHOP Franchising, and IHOP Franchisor (collectively, the “Franchisor Defendants”) maintain “significant control” over the acts of their respective Applebee's and IHOP franchisee restaurants. Dkt. No. 1, ¶¶ 11-16. The Complaint further alleges that Defendants infringed upon Heartland's trademark rights and misrepresented Non-Splenda Sweetener as Splenda® by providing Applebee's and IHOP customers with the yellow packets of Non-Splenda Sweetener without Heartland's authorization and without sufficient cues to distinguish it from Splenda®, causing customer confusion and false designation of origin. Dkt. No. 1, ¶¶ 51-56, 61-65, 69, 75-78, 83-85.

         On August 17, 2017, Defendants filed their Motion to Dismiss Heartland's Complaint. Dkt. No. 15. Defendants argue that Heartland cannot maintain its trademark infringement claims against them because the yellow color used for packaging Splenda® is a functional feature signifying that it is a sucralose product and is not a protectable trademark feature. Dkt. No. 16 at 6-8. Defendants also contend that Heartland's Complaint fails to properly state claims against all of the Defendants because it refers to Defendants collectively and does not notify each of the Defendants as to their allegedly wrongful behaviors, as required by Federal Rule of Civil Procedure 8. Dkt. No. 16 at 8-9. Furthermore, Defendants claim that Applebee's Services and Franchisor Defendants are improper parties to this action because the Complaint does not adequately describe their involvement in the alleged infringement. Dkt. No. 16 at 10-14.

         In response to Defendants' Motion to Dismiss, Heartland argues that its Complaint sufficiently meets the notice pleading standard of Rule 8 for its claims against each of the Defendants by alleging that Defendants participated in infringing activity and maintained control over its franchisees that misrepresented Non-Splenda Sweetener as Splenda®. Dkt. No. 19 at 6-10. Heartland further claims that its collective references to all of the Defendants was necessary in light of Defendants' complex corporate structures and Heartland's lack of discovery to determine each Defendant's proper status in relation to its claims. Dkt. No. 19 at 10-16. Moreover, Heartland asserts that the use of color alone can be protected as a trademark and that Defendants' arguments regarding the functionality of the yellow packaging are premature at the motion to dismiss stage. Dkt. No. 19 at 16-21.

         Standard of Review

         Defendants filed their Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). In this procedural context, we accept as true all well-pled factual allegations in the Complaint and draw all ensuing inferences in favor of the non-movant. Lake v. Neal, 585 F.3d 1059, 1060 (7th Cir. 2009). Nevertheless, the Complaint must “give the defendant fair notice of what the . . . claim is and the grounds upon which it rests, ” and its “[f]actual allegations must . . . raise a right to relief above the speculative level.” Pisciotta v. Old Nat'l Bancorp, 499 F.3d 629, 633 (7th Cir. 2007) (quotation marks and citations omitted). The Complaint must therefore include “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007); see Fed. R. Civ. P. 8(a)(2). Stated otherwise, a facially plausible complaint is one which permits “the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

         Legal ...


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