Wax, Inc., 191 F.3d 813, 819 (7th Cir. 1999).) For laches to apply in a trademark infringement
case, the defendant must show (1) an unreasonable lack of diligence by the party against whom
the defense is asserted and (2) prejudice arising therefrom. Bunn-O-Matic v. Bunn Coffee Service,
Inc., 88 F.Supp.2d 914, 925 (C.D. Ill. 2002) (citing Hot Wax, 191 F.3d at 820.) Courts have
recognized that “[e]ven if the elements of laches are established, however, a court need not bar
a plaintiffs suit. The application of the laches defense is discretionary, and as an equitable matter,
the district court is to look to all the facts and circumstances of the case and weigh the equities of
the parties.” Hot Wax, Inc. v. Turtle Wax, Inc., 27 F.Supp.2d 1043, 1048 (N.D. Ill. 1998), aff'd, 191
F.3d 813.

Laches can arise only where the plaintiff knew or should have known of the defendant’s
activities. Actual or constructive knowledge is sufficient, id. at 793, as the Seventh Circuit has
recently reiterated:

[T]he law is well settled that where the question of laches is in issue the plaintiff is

chargeable with such knowledge as he may have obtained upon inquiry, provided

the facts already known by him were such as to put upon a man of ordinary

intelligence the duty of inquiry.

Chattanoga, 301 F.3d at 793, quoting Johnston v. Standard Mining Co., 148 U.S. 360, 370 (1893).
Here, Clever Ideas alleges that it did not learn of Citicorp’s infringing behavior until 2002, but the
record demonstrates that Clever Ideas at least had constructive knowledge years earlier. For
example, in Count V of the Complaint (trademark infringement), Clever Ideas itself alleges that:

For eleven years, CDC by its words and actions, led CLI to believe that CDC used

the LE CARD mark in connection with the Corporate DC/LeCard Plan pursuant to

its license under the Agreement. The May 21, 2002 letter was the first time that

CDC asserted that CDC’s Corporate DC/LeCard Plan, and the money CDC

received thereunder, was not covered by the Agreement and the license.

(Complaint { 77.) This assertion is an odd one; neither party appears to contend that the

Corporate Card program dates back 11 years. The allegation demonstrates, however, that Clever

Ideas has been aware for years that Citicorp was using the LeCard in connection with the

19


the LeCard mark placed on the corporate cards.”

Nevertheless, Clever Ideas alleges that it was not aware of the five percent difference
between corporate and individual cardholders until sometime in 1998. (Complaint J 31.) At that
point, when Clever Ideas alleges it learned for the first time of the lower discount awarded to
corporate cardholders, Clever Ideas requested that Citicorp refund to Clever Ideas one-half of the
funds Citicorp had collected under the Corporate Card program (i.e. one half of the extra five
percent). (Complaint J] 33.) On March 30, 1999, Heather Turk, a Senior Vice President for
Citicorp, wrote to Lee Suckow, President of Clever Ideas, in response to Clever Ideas’ request for
a refund. In her letter, Turk stated that “[wle believe that our written agreement does not
contemplate a Corporate Card program because the program did not exist when the agreement
was signed, and because the agreement has not been amended to cover it. Whatever we agree
to do with the funds on hand is a matter to be agreed upon outside of the written agreement.”
(Letter from Turk to Suckow of March 30, 1999, Ex. E to Complaint.) Turk proposed that Citicorp
would split the five percent fee if Clever Ideas met certain goals, including: a) increasing the
number of member restaurants in the program (the letter set forth numerical goals to be met by the
year 2000); b) growth in the number of transactions; c) an increase in the amount of money spent
per transaction; d) an increase and improvement in marketing; and e) improvements in service that
would result in fewer refusals of cards in transactions and shorten the time taken to resolve
problems. (/d.) Turk wrote that “[o]nce program goals are mutually agreed upon and a structure
is put in place to meet them, Diners Club will pay LeCard 2.5% of Corporate Restaurant Spend.”
(/d.) The letter also contemplated a willingness to remit the same percentage in the future as well.

(Id.) A final condition of Turk’s letter was that Clever Ideas “agree with Diners Club to completely

0 The letters are not entirely clear on this point, but their contents (particularly the
references to IBM's participation) indicate that Clever Ideas was aware that the Corporate Card
program had already been put into place by Citicorp.

13


advertising.” 191 F.3d at 824. Citicorp claims that it placed the marks and logo on corporate cards,
advertised the program to corporations and corporate cardmembers, provided a discount to
corporate cardmembers, and paid Clever Ideas for the use of the marks all in reliance on its belief
that it had a license to use the mark in connection with the Corporate Card program. (Citicorp
Reply, at 12.) The record supports at least some of these assertions; there is evidence in the
Agreement itself that could that support Citicorp’s belief that it had a license to use the mark in this
way, as well as evidence that Citicorp paid a discount to corporate cardmembers. On the other
hand, Citicorp’s insistence that it paid Clever Ideas for the use of the marks appears to ignore the
fact, that apart from a one-time payment in 1999, it has never shared with Clever Ideas any of the
revenues from the Corporate Card program.

Nevertheless, although the court is not convinced that the prejudice to Citicorp was
overwhelming, the court concludes that allowing Clever Ideas to pursue these claims now would
be unfair. Unlike the situation in Hot Wax, where the parties were not even invoived in business
with each other, Clever Ideas and Citicorp formed a partnership in 1990 in which Clever Ideas
granted Citicorp the right to use the LeCard trademark. Citicorp placed Clever Ideas’ marks on
Dining Card credit cards, marketed the plan to corporations and individuals, and paid Clever Ideas
for use of the mark and logo. To permit Clever Ideas to assert infringement now puts Citicorp at
an unfair disadvantage. See E.E.0.C. v. Vucitech, 842 F.2d 936, 942 (7th Cir. 1988) (“If the
defendant in a suit for trademark infringement had been led to believe that that plaintiff would not
sue, and in reliance expended large sums of money on exploiting the allegedly infringing
trademark, he can plead laches if the plaintiff later sues, even if the delay has not impaired his
ability to defend in the slightest.”) (citations omitted). Particularly in light of Clever Ideas’
acceptance of a substantial (albeit singular) payment in 1999, Clever Ideas may not now argue that

Citicorp has suffered no prejudice from Clever Ideas’ delay in challenging the purported

23


317, 322-23 (1986); Alexander v. Wisconsin Dep't of Health and Family Services, 263 F.3d 673,
680 (7th Cir. 2001). A genuine issue of material fact exists “only if there is sufficient evidence for
ajury to return a verdict for that party.” Alexander, 263 F.3d at 680 (citing Baron v. City of Highland
Park, 195 F.3d 333, 338 (7th Cir. 1999)). When making this determination, the court must examine
the evidence and draw all reasonable inferences in favor of the nonmoving party. Alexander, 263
F.3d at 680. These standards apply even where, as here, both parties have moved for summary
judgment. The court will consider the merits of each motion separately and draw reasonable
inferences in favor of the non-movant on each motion; this "Janus-like perspective ... sometimes
forces the denial of both motions," but only where there are material facts in dispute. Buttitta v. City
of Chicago, 803 F.Supp. 213, 217 (N.D. Ill.1992). The Seventh Circuit has observed that cases
involving contract disputes are particularly well-suited to disposition upon summary judgment.
Neuma, Inc. v. AMP, Inc., 259 F.3d 864, 871 (7th Cir. 2001); Grun v. Pneumo Abex Corp., 163
F.3d 411, 419 (7th Cir. 1998), cert. denied, 526 U.S. 1087 (1999).

The court first explains the factual background of the case in greater detail, and then
presents reasons for its conclusion that Citicorp's motion for judgment on the pleadings will be
granted in part and denied in part, and both parties’ motions for partial summary judgment are
denied.

I. FACTUAL BACKGROUND

A. Factual Background Supplied in the Pleadings

Plaintiff Clever Ideas, Inc. is an Illinois corporation with its principal place of business in
Chicago, Illinois. (Complaint {| 3.) Clever Ideas designs, markets and implements a variety of
programs to assist restaurants with financing, marketing, and tracking information for the purposes
of understanding trends and increasing business. (/d. {| 7.) Defendant Citicorp Diners Club, a

Delaware corporation with its principal place of business in Chicago, is a franchisee of Diners Club


that its alleged failure to meet Citicorp’s expectations does not excuse Citicorp from compliance
with the Agreement’s post-termination provisions, including the prohibition against competition. In
short, neither party is entitled to summary judgment on this issue.
CONCLUSION

For the foregoing reasons, the court grants Citicorp's motion for judgment on the pleadings
(Doc. 22-1) with respect to Counts V through VIII under the doctrine of laches and dismisses those
counts without prejudice, but denies Citicorp’s motion to dismiss Counts | through III]. The court
denies Clever Ideas’ motion for partial summary judgment (Doc. 29-1), and therefore sirikes
Citicorp’s cross-motion for partial summary judgment (Doc. 36-1) as moot (except for the portion
requesting a declaratory judgment, which the court denies on the merits), Clever ideas’ motion to
strike portions of Citicorp’s response to Clever Ideas’ statement of undisputed material facts (Doc.
53-1) is denied as moot, as the court did not rely on any of those disputed statements in deciding
these motions.

Astatus conference is set for September 18, 2003 at 9:30 a.m. The parties are directed to
meet and confer prior to that date to discuss a settlement of their differences.

ENTER:

Dated: August 20, 2003 Rorsn
REBECCA R. gies of

United States Dist

34


Corporate Card plan, and was allegedly unaware only that Citicorp believed it was not obliged to
share revenue from that plan with Clever Ideas.

The 1997 letters from Higgins to Schneider, copies of which were attached to Citicorp’s
Answer, confirm that at least as early as January 1997, Clever Ideas was aware that Citicorp was
expanding the LeCard program to include corporate clients, specifically IBM, and actually
demanded that Citicorp begin using the LeCard mark on the corporate Diners Club cards as soon
as possible."' (Letter from Higgins to Schneider of Jan. 28, 1997, Ex. C to Answer and
Counterclaim.)

Clever Ideas argues that it first learned of the infringement of its mark in May 2002, when
Rubinstein wrote to Sloane that:

When the 1990 Agreement was signed, CDC did not offer a separate Corporate

Card program. Accordingly, when the CDC Corporate Card program was created

in 1996, it was not covered by the 1990 Agreement . . . [T]he 1990 Agreement was

never amended or modified to encompass the Corporate Card program. The terms

and conditions of the 1990 Agreement thus never applied to the Corporate Card

program.

(Clever Ideas’ Mem. at 2, 5-6 (citing Letter from Rubinstein to Sloane of May 21, 2002, Ex. | to
Citicorp’s Mem.) Assuming that this constitutes an admission that Citicorp was infringing upon
Clever Ideas’ trademark, other evidence in the record shows that Clever Ideas could have
discovered the alleged infringement much earlier had Clever Ideas been more diligent. For
example, the March 30, 1999 letter from Turk to Suckow contained the same assertion Rubinstein
made to Sloane that the 1990 Agreement did not cover the Corporate Card program. (Letter from
Turk to Suckow of March 30, 1999, Ex. E to Complaint.) The 1997 letters are perhaps the most

damaging to Clever Ideas, for they demonstrate not only that Clever Ideas was aware of IBM's

involvement in the Corporate Card program, but also that Clever Ideas encouraged Citicorp to

” Although the court need not reach the issue to decide these motions, this letter casts
doubt on Clever Ideas’ assertions that Citicorp did not have a license to use the LeCard mark in
connection with the Corporate Card program.

20


provisions overlap, the court shail discuss them together.

1. CLI agrees to use its best efforts to promote and publicize to restaurants the
availability of the Plan. (Agreement Art. III(C).)

Clever Ideas argues that the “best efforts” provision is unenforceable because Illinois courts
have “uniformly found that a contractual ‘best efforts’ commitment is too indefinite and uncertain
to support an action for breach.” (Clever Ideas’ Summary Judgment Mem., at 8.) In fact, in at least
a handful of cases, courts have enforced such language. See Beraha v. Baxter Health Care Corp.,
956 F.2d 1436, 1440 (7th Cir. 1992) (Beraha correctly points out that Illinois courts have enforced
best efforts clauses.”); see also GLS Development, Inc. v. Wal-Mart Stores, Inc., 944 F.Supp.
1384, 1392 (N.D. Ill. 1996) (“Illinois courts have not categorically rejected all contracts that explicitly
require ‘best efforts’ performance.”)

That said, Clever Ideas is correct that fllinois courts have been more reluctant than most
to enforce such provisions. See Penzell v. Taylor, 219 lll.App.3d 680, 579 N.E.2d 956 (1st Dist.
1991); Garbelmann v. Creditcard Keys Co., No. 89 C 6020, 1992 WL 73531 (N.D. Ill. March 27,
1992). These cases clarify that a simple promise to use “best efforts” is unenforceable if no criteria
exist by which to measure the effort. For example, in Kraftco Corp. v. Kolbus, 1 Il|_App.3d 635, 274
N.E.2d 153 (4th Dist. 1971), cited by Clever Ideas, the court concluded that an oral distributorship
contract lacked mutuality where the distributor's only obligation was to use his “best efforts” to sell
the products. In reversing a judgment against the distributor, the appellate court concluded that
such an obligation was too indefinite and uncertain to be an enforceable standard. /d. at 639.
Kraftco did not hold that best efforts clauses are per se unenforceable, however; instead, the court
determined that where there is no obligation regarding duration, prices, area, products, quotas, and
quantity set forth in the contract, the contract lacks the requisite certainty to be enforceable. /d.
at 638-39.

In other cases, as well, Illinois courts have enforced contractual “best efforts” clauses only

26


and Deceptive Business Practices Act, 815 ILCS 505/10(a)(e), has been applied to the Illinois
Uniform Deceptive Trade Practices Act, which forms the basis for Clever Ideas’ Count VIII. Elrad
v. United Life and Acc. Ins. Co., 624 F.Supp. 742, 745 (N.D. lil. 1985); see also Chattanoga, 140
F.Supp. 2d at 931; Hot Wax, Inc. v. Warsaw Chem. Co., Inc., 45 F.Supp.2d 635, 647 (N.D.
IlI.1999). That statute of limitations is thus applicable to Clever Ideas’ trademark and unfair
competition claims.

The fact that Clever Ideas demanded as early as March 1999 that Citicorp split the fees
derived from the Corporate Card program belies Clever Ideas’ assertion that it was reasonable to
wait until July 2002 to file suit. Based on Clever Ideas’ knowledge of Citicorp’s use of the LeCard
mark in connection with the Corporate Card program, the court concludes that Clever Ideas had
a duty to investigate whether its mark was being used lawfully. Chaftanoga, 140 F.Supp.2d at 931
Yet inexplicably, Clever Ideas took no action until 2002, when Citicorp terminated the Agreement,
and at least five years after it knew about or even encouraged Citicorp’s prompt use of the mark.
Clever Ideas might argue that it understood Citicorp’s use of the marks for the Corporate Card plan
would be governed by the parties’ Agreement. Such an understanding is not, however, consistent
with Clever Ideas’ assertion that it was unaware of the existence of the Corporate Card plan at all.

Even where, as here, there has been unreasonable delay, the court must consider the issue
of prejudice to the defendant before the court concludes a claim is barred by laches. The Seventh
Circuit has explained that “[a] delay prejudices a defendant when the assertion of a claim available
for some time would be inequitable in light of the delay in bringing that claim and ensues when a
defendant has changed his position in a way that would not have occurred if the plaintiff had not
delayed.” Chattanoga, 301 F.3d at 795 (citation omitted). In Hot Wax, for example, where the
plaintiff waited more than ten years before filing suit against its competitor, Turtle Wax, for
trademark infringement, the Seventh Circuit noted that during the time plaintiff “sat idly by. . . [,]
Turtle Wax invested significant amounts of time and money in product development and

22


current markets, the current number of participating restaurants, and the number [Citicorp believed
was] needed to maintain consumer appeal and to enable us to actively and effectively market the
LeCARD program to our Cardmembers in each market.” (/d.) Clever Ideas’ response, if any, is
not in the record.

Heather Turk, Senior Vice President of Marketing for Citicorp, wrote to Thomas Higgins of
Clever Ideas on December 5, 1995. In the letter, Turk related that Citicorp had been notified of a
new agreement between Transmedia (a dining discount program similar to LeCard) and American
Express. Turk noted that this “would give American Express a restaurant discount dining program
with over 4,000 participating restaurants. This puts our LeCard program at an intolerable
competitive disadvantage.” (Letter from Turk to Higgins of Dec. 5, 1995, Ex. F to Complaint.) Turk
wrote that “[w]ithout dramatic improvement, please consider yourselves on notice that the LeCard
Plan cannot be sustained in its current form at such a disadvantage. We would like to review
LeCard’s plans to expand in both quantity and quality of participating restaurants to effectively
compete with American Express.” (/d,) As with the 1993 letter, there is no record of Clever Ideas’
response.

At no time prior to the termination of the 1990 Agreement did any Clever Ideas employee
ever inform any Citicorp employee that Clever Ideas did not understand the meaning of the 1990
Agreement. (CDC's 56.1 Statement {] 46.)

DISCUSSION

I. Motion for Judgment on the Pleadings

In its motion for judgment on the pleadings, Citicorp asks the court to dismiss all claims in
Clever Ideas’ complaint that charge Citicorp with trademark infringement. Citicorp contends that
because Clever Ideas knew of and consented to Citicorp's use of the LeCard mark and logo in

connection with the Corporate Card program at latest since 1997, Clever Ideas is now barred from

17


(3) CDC would notify CLI promptly of any possible infringements, imitations or
unauthorized possession, knowledge or use of the LeCard marks by others
of which CDC becomes aware; and

(4) CDC would take no action that could be detrimental to the good will
associated with the Le Card marks or with CLI.

(Agreement Art. IV(A)(2)(a), (b) and (c)) (numbers supplied by the court). Pursuant to the license
and Agreement, the LeCard marks were imprinted on the back of the Diners Club charge cards.
(Complaint {| 21.)
3. Provisions on Termination

The parties agreed that the contract would be renewed automatically for successive one-
year terms unless terminated by either party on 60 days advance written notice. (Agreement Art.
IV(D)(1).) The Agreement also provided that if either party materially breached or failed to perform
any ofits “material obligations hereunder . . . and such failure [remained] uncured for 30 days after
a party receives written notice from the other party, such other party may terminate the Agreement
effective upon receipt of written notice to that effect by the breaching party.” (/d. Art. 1V(D)(2).) In
addition, the Agreement authorized Citicorp to terminate the Agreement “upon written notice,” if,
in its “reasonable discretion,” Citicorp determined (1) that there was a materially adverse change
in Clever Ideas’ business or financial condition, (2) that the plan had insufficient consumer appeal,
or (3) that there was an insufficient number or type of member restaurants to maintain consumer
appeal of the plan.® (/d. Art. 1V(D)(3)(b) and (c).}

Certain rights and obligations arose on termination. First, the Agreement provided that
“after the termination of this Agreement, CL! and CDC shall refrain from the use of any names,
logos or marks of the other party, except if such use is necessary to: (i) wind down the Plan; or (ii)
bill and/or collect LeCard Card balances.” (/d. Art. IV(D)(6)(c).) The wind-down provision of the

Agreement contemplated that “[uJpon any termination of the Agreement, except as otherwise

‘ Other provisions regarding termination are not relevant to the present dispute.

9


manner, such as submitting up-to-date lists of member restaurants. (Letter from Rubinstein to
Sloane of May 20, 2002, Ex. | to Complaint.) Clever Ideas argues that this provision is too
indefinite because it fails to provide any criteria for what would be detrimental to Citicorp’s goodwill,
and fails to provide any objective standards for what Clever Ideas must do to comply with industry
standards. In Citicorp's view, although these provisions appear in the section of the Agreement
entitled “Trademarks and Service Marks,” and refer specifically to Clever Ideas’ use of Citicorp’s
trademarks, their meaning is sufficiently clear. Here, again, the court is not persuaded that there
are no disputes of fact concerning the enforceability of these provisions. In the context of the
Agreement, the court presumes that “industry” referred to dining discount credit card programs,
such as the LeCard plan, and that Clever Ideas was in a good position to judge what actions would
be detrimental to its partner Citicorp. The court concludes that in the context of the 1990
Agreement as a whole, Plaintiff has not satisfied the court that these provisions are unenforceable
as a matter of law.
4. CLI agrees to provide to CDC, on an annual basis and within 30 days after

its preparation, a copy of CLI’s annual balance sheet as of the end of CLI’s
fiscal year and CLI's income statement for such year. (Agreement Art.

IMP)(3\b).)

Citicorp alleges that Clever Ideas’ breach of this provision was material in that it prevented
Citicorp from determining whether Clever Ideas’ business or financial condition had undergone
materially adverse change (which would then give Citicorp the discretionary right to terminate the
contract). Clever Ideas argues that if Citicorp could not declare Clever Ideas in material breach for
suffering an adverse change in its financial condition, then Clever Ideas’ purported failure to
provide financial information cannot be the basis for declaring Clever Ideas in material breach. The
court is uncertain about the thrust of this argument, but in any event concludes that at this juncture
it need only determine whether there are disputes concerning the enforceability of the provision.

The court has little difficulty determining that the provision is clear and sufficiently definite on its

32


reasonable diligence in obtaining orders . . .”)."4

The Gentieu rationale is relevant here, as well. Clever Ideas and Citicorp were the only two
entities who had rights to operate the LeCard program; therefore the parties depended on each
other to ensure the program’s success. If either party was dissatisfied with the other's
performance, the pian was itself in jeopardy, for there was no other entity to turn to for
improvement. Indeed, a provision of the Agreement stated that “during the term of this Agreement,
CDC will not establish a discount dining program which has as its basis a barter-type arrangement
with restaurants, nor will it cause anyone else to do so or instruct any third party in the
establishment of such a program.” (Agreement Art. IV(C)(1).) In this regard the 1990 Agreement
resembles the exclusive contract of Gentieu, and the court concludes that the best efforts language
is enforceable.

Although the case law described here does not offer explicit guidance, it satisfies the court
that disputes of material fact preclude summary judgment on the enforceability of the “best efforts”
clause in this case. There is evidence that the parties agreed to at least some specificity
concerning Clever Ideas’ obligations. The 1993 letter from Patricia Foell of Citicorp to Lee Suckow
is one example, for Foell provided specific goals Citicorp wanted Clever Ideas to meet in various
markets nationwide. (Letter from Foell to Suckow of Dec. 9, 1993, Ex. 2(A) to Citicorp’s 56.1.) The

March 1999 letter from Heather Turk of Citicorp to Suckow is another example: that letter set forth

“4 Even where an agreement contains no specific numbers by which to judge the
parties’ performance, it may be rendered enforceable by reference to performance, particularly
where an exclusive relationship is involved. For example, in Skinner v. Shirley of Hollywood, 723
F.Supp. 50, 53 (N.D. Ill. 1989), defendant, a lingerie manufacturer, hired plaintiff to be its sole sales
agent for an exclusive territory of the Midwest. The court denied defendant's motion to dismiss,
plaintiff's breach of contract claim, stating “[i]n light of the fact that both parties had been fully
performing under the contract for eleven years prior to the alleged breach, Shirley's position that
the agreement was vague and unclear is disingenuous.” /d. Although the opinion does not reveal
whether the agreement in Skinner contained a best efforts clause, the court’s observation about
the duration of the relationship is relevant here. The court is reluctant to entertain an argument
from either Clever Ideas or Citicorp that the best efforts clause is ambiguous after twelve years of
performance under the contract.

29


increasing the rate of Diners Club card use, and presumably increasing the profitability of the
member restaurants. (/d. 16.)

As described in the parties’ written Agreement, when a cardmember presented his Diners
Club card to a member restaurant for payment of a bill, the restaurant would create a document
of charge (“sates draft”), which the restaurant would send to Clever Ideas as partial payment of the
cash advance Clever Ideas had previously given the restaurant. Clever Ideas would then prepare
adocument (“credit draft’) reflecting 20% of the cardmember’s total restaurant bill and present both
the sales draft and the credit draft to Citicorp for payment of the net amount (sales draft minus
credit draft), or 80% of the cardmember's total restaurant bill.* (/d. 117.) Although this sequence
of events was set forth in the Agreement, in practice the money passed more directly: the sales
drafts and credit drafts were sent directly from the restaurant to Citicorp for payment, at which point
Citicorp would remit the net amount (80% of the restaurant bill) to Clever Ideas. (/d. J 18.)

After paying the net amount to Clever Ideas, Citicorp would charge and collect from the
member restaurant a processing fee of 2.9% of the cardmember's total bill, charge and collect from
Clever Ideas processing fees amounting to 3.5% of the cardmember's total restaurant bill, process
and settle the cardmember’s purchase, and ultimately cause the cardmember’s monthly billing
statement to reflect the discount for the meal purchased at the member restaurant. Citicorp
recoups its share of the cost of the program only when the cardmember pays the monthly bill. (/d.
{ 19.) The program was intended to be an attractive member benefit for which cardmembers
would pay an additional fee. (Answer §/ 12.) Citicorp expected that the availability of the dining
discount would increase Citicorp’s cardmember base and reduce attrition and would entice

cardmembers to dine out more frequently, thereby increasing the rate at which they used their

$ Article 11(B)(2) of the Agreement defines the discount to be 25% of the member
restaurant's standard price for food and beverages, but in practice the parties consistently
calculated this discount to be 20% of the cardmember's post-tax and post-tip restaurant bill. (/d.

120.)


international Ltd., and is authorized to issue Diners Club charge cards in the United States.
Citicorp operates a system that processes the exchange of financial and non-financial data
between Citicorp, participating issuers of credit cards, financial institutions, and processors. (/d.
q0 4, 14.)

One of Clever Ideas’ programs is its "LeCard” marketing and financing plan, pursuant to
which Clever ideas advances cash to participating restaurants based on estimates of annual credit
card sales.* The participating restaurants repay Clever Ideas for the cash advance by forwarding
to Clever Ideas ail credit card payments made by their customers, with each transaction reducing
the restaurant’s credit balance. (/d. f 8.)

Clever Ideas owns the “Le Card” trademark, which the company and its predecessors have
used continuously since at least August 30, 1987. (/d. J 9; U.S. Trademark No. 1,526,094 (issued
Feb. 21, 1989).) Clever Ideas also owns a common law trademark in the LeCard logo, which
Clever Ideas has used continuously in interstate commerce in connection with the dining program
since as early as August 30, 1987. (/d. J 12.)

1. Overview of the LeCard Plan

On November 6, 1990, Clever Ideas and Citicorp entered into the “LeCard Card Agreement"
(‘Agreement” or “1990 Agreement”), pursuant to which the two companies agreed to collaborate
to make discount services at certain restaurants available to Diners Club cardmembers, using the
LeCard marketing and financing plan. (/d. 115.) Under the pian, Diners Club cardmembers would
receive a discount if they dined at a “member restaurant,” defined as a restaurant that had an
agreement with Citicorp to honor Diners Club cards, and had aiso entered into a cash-advance loan
agreement with Clever Ideas. The purpose of the parties’ Agreement was to use the LeCard

discount to entice Citicorp cardmembers to patronize member restaurants more frequently, thereby

2 The record does not indicate whether Clever Ideas was involved in making these
estimates, or whether the restaurants came up with them on their own.

5


raising these allegations under either the statute of limitations or the doctrine of laches. (Reply
Memorandum in Support of Citicorp’s Motion for Judgment on the Pleadings, hereinafter “Citicorp
Reply,” at 3.) Clever Ideas responds that its claims are not time barred because it was not aware
of Citicorp’s infringement and other deceptive practices until May 21, 2002, when Rubinstein
asserted in his letter to Sloane that the Corporate Card program was not governed by the 1990
Agreement. (Clever Ideas’ Memorandum of Law in Opposition to Citicorp's Motion for Judgment
on the Pleadings, hereinafter “Clever Ideas’ Mem.,” at 5.) Citicorp contends, however, that the
1997 Higgins/Schneider correspondence and the 1999 Turk letter put Clever Ideas on notice of the
Corporate Card program and Citicorp’s use of the LeCard mark. According to Citicorp,
Rubinstein’s letter meant only that the 1990 Agreement did not require Citicorp to pay Clever Ideas
a fee for the Corporate Card program, because no such program was in effect as of 1990; but the
1990 Agreement did contemplate and permit Citicorp to initiate a Corporate Card program.
(Citicorp Reply, at 3.)

Citicorp’s argument that Counts | through Ill are time barred merits little discussion. These
counts relate to Citicorp’s post-termination actions. (Complaint ff] 54, 55, 59, 61, 62, 66, 68, 69.)
Given that this action was filed the same year that the contract was terminated, the court fails to
see how these claims may be construed as time barred. In this court’s view, the sole issue with
regard to these post-termination counts is whether Citicorp’s actions in refusing to immediately re-
issue Diners Club cards that did not display the LeCard mark or logo were justified. That precise
issue has not been raised by any of the motions now before the court, and therefore the court
simply denies Citicorp's motion for judgment on the pleadings with respect to these claims.

With respect to the remaining infringement claims at issue in this motion (Counts V through
Vill), the court agrees with Citicorp that they are barred by the doctrine of laches. The doctrine of
laches is derived from the maxim that “those who sleep on their rights, lose them.” Chattanoga
Manufacturing, Inc. v. Nike, Inc., 301 F.3d 789, 792 (7th Cir. 2002) (citing Hot Wax, Inc. v. Turtle

18


a “sufficient” number of member restaurants to adequately support the plan. (Agreement Art.
M(C).) The parties do not dispute that the 1990 Agreement did not explicitly define best efforts,
nor did it identify any specific actions that Clever Ideas was required to take to satisfy the provision.
Nor did the Agreement set a particular number of restaurants that would be sufficient to adequately
support or sustain the plan. The Agreement did require Clever Ideas to submit, on a quarterly
basis, a list of all member restaurants for dissemination by Citicorp to all LeCard cardholders.
(Agreement Art. II(B)(1).) The Agreement also stated that “CLI agrees to provide to CDC, on an
annual basis and within 30 days after its preparation, a copy of CLI’s annual balance sheet as of
the end of CLI’s fiscal year and CLI’s income statement for such year.” (Agreement Art.
IV(D)(3)(b).) The parties agreed that the contract could only be amended or modified by a writing
signed by officers of both Clever Ideas and Citicorp that specifically refers to the Agreement.
(Complaint J] 25.)

The 1990 Agreement provided that its “validity, interpretation and performance . . . will be
controlled by and construed under the laws of the State of lilinois.” (Agreement Art. IV(K), Ex. A
to CLI’s 56.1.)

2. License to Use LeCard Trademark

The operation of the plan required that Citicorp have the ability to use the LeCard marks.
Therefore, in the Agreement, Clever Ideas granted Citicorp an exclusive license to use the LeCard
marks for the duration of the Agreement. (Complaint | 21.) With respect to this license, Citicorp
agreed, among other things, that:

(1) no design featuring the LeCard marks may be used without the prior written
consent of CLI;

(2) during the term of the Agreement and after its termination, CDC wouid
execute documents CLI may request to ensure that all right, title and interest
in and to the Le Card marks reside in CLI, and except as otherwise set forth
in the Agreement neither during nor after the termination of the Agreement
shall CDC assert any claim to such goodwill;


infringement. *

In this court's view, Clever Ideas’ objection to Citicorp’s conduct is not that Citicorp is
infringing its mark, but that Citicorp has used Clever Ideas’ mark for the Corporate Card program
without compensating Clever Ideas for it. In any event, the court concludes that Clever Ideas is
barred by the doctrine of laches from pursuing the infringement claims in Counts V through VIII.
N. Cross Motions for Partial Summary Judgment

In its motion for partial summary judgment, Clever ideas asks the court to declare
unenforceable the provisions of the 1990 Agreement Citicorp invoked in 2002 as grounds for
terminating the contract, hold that Citicorp is accordingly bound by the three-year non-compete
provision contained in the 1990 Agreement, and dismiss Count ! of Citicorp’s counterclaim (which
alleges that Clever Ideas materially breached the 1990 Agreement). Citicorp has filed a cross-
motion for partial summary judgment, requesting that the court declare enforceable the contractual
provisions invoked by Citicorp as enforceable, declare that if Citicorp properly terminated the 1990
Agreement for reason of Clever Ideas’ material breach, the three-year covenant not to compete
in the 1990 Agreement does not bind Citicorp, and grant Citicorp judgment on Count IX of Clever

Ideas’ Complaint.

8 Put another way, having accepted payment for the corporate program, Clever Ideas
is estopped from arguing that the program was unauthorized. Cf AmCan Enterprises, Inc. v.
Renzi, 32 F.3d 233, 235 (7th Cir. 1994) (“If the licensor does not maintain adequate quality control,
the mark may be deemed abandoned, or, equivalently, the licensor may be estopped to complain
about infringements of it.” ) (citations omitted). Indeed, some courts have noted the close similarity
between the doctrines of estoppel and laches, which may explain Citicorp’s decision to discuss only
one of them. See ProFitness Physical Therapy Center v. Pro-Fit Orthopedic and Sports Physical
Therapy P.C., 314 F.3d 62, 67-68 (2d Cir. 2002); Piper Aircraft Corp. v. Wag-Aero, Inc., 741 F.2d
925, 938 (7th Cir. 1984), quoting 2 TRADEMARKS AND UNFAIR COMPETITION 551, 565 (2d ed. 1984)
(‘Estoppel by laches = delay x prejudice.”). Ironically, Clever Ideas, not Citicorp, raised the matter
of estoppel. The court is unmoved by Clever Ideas’ notion that Citicorp is estopped from raising
the issue of timeliness; the record presents no evidence that Citicorp intentionally misled Clever
Ideas about the nature of the Corporate Card program.

24


se . el

Minute Ger Form (08/3)

noe United States District Court, Northern District of Illinois

Nan f Assigned Judge Sitting Judge if Other
neaidsict ute | Rebeggs{R. Pallmeyer | Ska Joe Ome
————_—___—_—_—_—_——_— if
CASE NUMBER Via 02 C 5096 DATE 8/20/2003
CASE Clever Ideas, Inc. vs. Citicorp Diners Club, Inc.
TITLE

Un the following box (a) indicate the party filing the motion, e.g., plaintiff, defendant, 3rd party plaintiff, and (b) state briefly the
nature of the motion being presented.}

MOTION:

DOCKET ENTRY:

(D o Filed motion of [ use listing in “Motion” box above.]

(2) Q Brief in support of motion due

@) a Answer brief to motion due___._ Reply to answer brief due

(4) im Ruling/Hearing on___ssetfor__ at

(5) | Status hearing set for 9/18/03 at 9:30 a.m.

(6) a Pretrial conference[held/continued to} [set for/re-set for]on ss set for at

(7) a Trial{set for/re-set for] on__at

(8) o {Bench/Jury trial) [Hearing] held/continued to____sat

(9) a This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant to}
COFRCP4(m) 1 Local Rule 41.1 © FRCP41(a)(1)  O FRCP41(a)(2).

(10) ‘al {Other docket entry] _ Enter Memorandum Opinion and Order. The court grants Citicorp’s motion for judgment

on the pleadings (Doc. 22-1) with respect to Counts V through VIII and dismisses those counts without prejudice, but denies Citicorp’s
motion to dismiss Counts I through III. The court denies Clever Ideas’ motion for partial summary judgment (Doc. 29-1), and therefore
strikes Citicorp’s cross-motion for partial summary judgment (Doc. 36-1) as moot (except for the portion requesting a declaratory
judgment, which the court denies on the merits). Clever Ideas’ motion to strike portions of Citicorp’s response to Clever Ideas’
statement of undisputed material facts (Doc. 53-1) is denied as moot, as the court did not rely on any of those disputed statements in
deciding these motions. The parties are directed to meet and confer prior to next status to discuss a settlement of their differences.

(ll) td [For further detail see order attached to the original minute order.]

No notices required, advised in open court. ’

No notices required. snot
number of notices

VY | Notices mailed by judge's staff.

Notified counsel by telephone.

Docketing to mail notices.

¢ uf
cocketing deity Mritials

8/20/2003

Mail AO 450 form.

CC

a's

Copy to juclge/magistrate judge.

yunod Laie i

dave maited notice

courtroom

my cea aac Hy 02 -
initials e7:6 id 0
Date/time received,in 4 ;
ruiz central Clerk's Office *' nailing deputy initials
Bas

1-05


receive a discount. (/d. ] 28.) The Corporate Card plan was similar to the individual plan, but
unlike the individual plan, the cardmember discount was not reflected as a credit on the corporate
cardmember’s monthly Diners Club statement. Rather, Citicorp issued the corporate cardmember’s
employer (who often was ultimately responsible for paying the monthly balance on the card) a
quarterly rebate check representing the total discount accumulated by ail of the employer's
cardholders over a three-month period. (/d. | 30.) Another difference significant to this litigation
was that instead of the 20 percent discount given to individual cardmembers, Citicorp awarded its
corporate cardholders a 15 percent discount. Citicorp nevertheless still paid CLI only 80 percent
of the total of each corporate cardmember's restaurant bill, but then Citicorp recouped 85 percent
of the total, thus earning an additional five percent per restaurant purchase by a corporate
cardholder. Citicorp pocketed the extra five percent, a bonus that Clever Ideas claims constitutes
a breach of the Agreement.

The record does not reveal precisely when Clever Ideas learned of the Corporate Card plan,
but there were communications between the parties concerning the matter as early as January
1997. On January 9, 1997, Thomas Higgins, Clever Ideas’ Senior Vice-President, wrote to Yana
Schneider of Citicorp “[iJn response to [Schneider’s] January 8, 1997 letter regarding corporate
LeCARD.” (Letter from Higgins to Schneider of Jan. 9, 1997, Ex. B to Citicorp’s Answer and
Counterclaim.) Among other things, Higgins wrote that “[w]e have never agreed to and do not
currently agree to the activation of any cardmembers [sic] card, personal or corporate, to the
LeCARD program without that card having the LeCARD logo properly displayed on it.” (/d.) In
another portion of the letter, Higgins addressed participation by the IBM Corporation in the LeCard

program, expressing his concern that the amount spent by IBM was insufficient to support the costs

6 The record does not indicate whether the list of restaurants sent to corporate
cardmembers was identical or different from the one sent to individual members.

11


provided herein, the parties hereto shall each continue to perform . . . each of their respective
obligations in accordance herewith upon the same terms and conditions as are herein set forth for
a period of 180 days following the effective date of such termination.” (/d. Art. 1V(D)(6)(b).)

Article 1V, Section C(1) stated that if Citicorp were to terminate the Agreement for any
reason other than Clever Ideas’ material breach, a material change in control of Clever Ideas, or
Clever Ideas’ bankruptcy or insolvency, then “for a period of three (3) years after the effective date
of such termination CDC will not enter into a LeCard-type barter arrangement with any third party,
nor will it itself establish such a program.” (/d. Art.IV(C)(1).) Finally, Article IV, Section | provided
that:

{s]hould any Section of this Agreement be declared invalid for any reason, such

decision shall not affect the validity of any other Sections, which other Sections shall

remain in force and effect as if this Agreement had been executed with the invalid

Section(s) eliminated, and it is hereby declared the intention of the parties that they

would have executed the other paragraphs of this Agreement without including

therein any such Section(s) which may for any reason be hereafter declared invalid.
(Id. Art. I(1).)

4. Performance of the Agreement

The record contains little information about the earliest years of the plan’s implementation,
but it appears there was some friction from the beginning. As early as 1993, Citicorp complained
that there were not enough member restaurants to sustain the plan. For its part, Clever Ideas
complained that Citicorp did not adequately promote and support the plan, and argued that the
restrictions Citicorp placed on Clever Ideas’ marketing and efforts to expand the plan contributed
to the fact that there were not more member restaurants. (/d. J] 38; see, e.g., Letter from Thomas
Higgins to Yana Schneider of Jan. 9, 1997, Ex. B to Answer.)

Beginning in late 1995 and early 1996, Citicorp began to offer a corporate LeCard plan to

its corporate cardmembers, issuing corporate Diners Club cards with the LeCard mark, and

periodically distributing an updated list of restaurants at which corporate cardmembers could

10


a sufficient number and quality of restaurants to adequately support the
Plan, and CDC shall have the right to terminate this Agreement effective
upon written notice received by CLI in the event CDC determines, in its sole
judgment: (i) that the Plan has insufficient consumer appeal, or (ii) that there
are an insufficient number or type of Member Restaurants to maintain
consumer appeal of the Plan. (Agreement Art. IlI(C); 1V(D)(3)(c).)

For reasons similar to those discussed above, the court concludes these provisions also
are enforceable. The court agrees with Clever Ideas that “sufficient” and “adequate” are indefinite
terms, but ultimately concludes that the course of conduct between the parties over twelve years
helped clarify the contractual terms. For example, there was communication in 1995 between the
parties concerning the new Transmedia-American Express partnership and the need to respond
accordingly by expanding the number of restaurants in the LeCard plan. (Letter from Turk to
Higgins of Dec. 5, 1995, Ex. F to Complaint.) And as discussed previously, the 1999 letter, which
was signed by representatives of both Citicorp and Clever Ideas, listed specific numerical goals in
various areas. Finally, if Clever Ideas felt that the terms “sufficient” or “adequate” were too
indefinite to have any meaning, Clever Ideas could have sought clarification at some point early
on, or terminated the contract, as it was entitled to do. That Clever Ideas failed to do so supports
the court's conclusion that there are disputes of fact concerning the enforceability of these
provisions, requiring that Clever Ideas’ motion for judgment in its favor on the issue must be
denied. See Skinner, 723 F.Supp. at 53.

3. CLI shall not take any action that could be detrimental to the goodwill
associated with the Diners Club Marks or with CDC. CLI shall operate its
business and perform all services in accordance with the highest standards
of quality associated with the industry and in accordance with good
trademark practice. (Agreement Art. 1V(A)(1)(b).)

Citicorp charged Clever Ideas with breaching this portion of the Agreement by failing to

promote the plan and failing to maintain restaurants of sufficient number and quality in the plan.

Citicorp complained that Clever Ideas’ staff generated complaints from both restaurants and banks

with whom they did business, and failed to perform even the most ministerial tasks in a professional

31


specific numerical goals for member restaurants, goals for the number of transactions, and goals
for increasing the amount spent on every transaction. (Letter from Turk to Suckow of March 30,
1999, Ex. E to Complaint.) The letter included a chart breaking down the markets in the United
States and listed goals for each market."* (/d.)

Clever ideas contends that the March 1999 letter was not a contract between the parties,
but the court finds this issue irrelevant. The case law does not suggest that to clarify the terms of
a contract, the parties must enter into a new contract supported by consideration. The 1990
Agreement was for an indefinite duration. It is therefore understandable that the parties would,
from time to time, set new performance goals. In contrast to the contract in Kraftco, here the
parties entered into a detailed, 25 page agreement: only five provisions are challenged here. And
as in Skinner, the fact that the parties performed under the contract for 12 years seriously detracts
from Clever Ideas’ argument that its terms are too indefinite to be enforced.

Clever Ideas also argues that the March 1999 letter is admissible because the 1990
Agreement contains an integration clause. Such clauses, however, only prevent the introduction
of writings, agreements or conduct occurring before the contract was entered into, unless the
parties agree otherwise. A.W. Wendell and Sons, Inc. v. Qazi, 254 IIl_App.3d 97, 105, 626 N.E.2d
280, 287 (2d Dist. 1993). The court likewise rejects Clever Ideas’ argument that the term “goals”
used in the 1999 letter is not enforceable. As Citicorp points out, this court has specifically stated
that where a “goal is provided or where there are standards by which to measure the effort, there
is no problem in a ‘best efforts’ contract with either vagueness or failure of consideration.”
Wendnagel, 1989 WL 153373, at * 6.

2. CLI agrees to establish and maintain Member Restaurant Agreements with

6 Clever Ideas might argue that the goals set forth in Turk’s March 1999 letter were
conditions for going forward with the Corporate Card plan, not glosses on the 1990 Agreement.
Clever Ideas has not made such an argument, however, and the court is not inclined to develop
such an argument when Clever Ideas itself seeks summary judgment.

30


Diners Club cards. In addition, the dining discount program was meant to encourage restaurants
which previously did not accept the Diners Club card as a form of payment to do so. (Answer 8.)
Clever ideas benefitted from the Plan because it earned money through financing and marketing
arrangements with member restaurants. (/d. {[ 10.)

With respect to several critical terms, the Agreement is not a model of precision. For
example, no firm figure is set as the fee to be paid by cardholders. Instead, the Agreement merely
stated:

Any fee charged to Cardmembers in connection with the LeCard Card or the Plan

shall be determined from time to time upon mutual consent of the parties. Any such

fee shall be divided between CLI and CDC as the parties agree from time to time.
(Agreement Art. II(A)(2)(b).) Nor did the Agreement impose any specific mandatory obligations
on Citicorp. Instead, it simply provided that Citicorp would market the LeCard Card to “eligible”
Diners Ciub cardmembers with “reasonable frequency and a reasonable format.” (Agreement Art.
1i(A)(1), Ex. C to Complaint.) Citicorp agreed to use its best efforts to cause Citibank of South
Dakota‘ to offer and issue the LeCard Card to eligible cardmembers, and the Agreement
contemplated that the “LeCard Card [would] be issued from time to time to existing Eligible Diners
Club Cardmembers as a supplemental feature of the Diners Club Card.” (Agreement Art.
11(A)(2)(a).) “Eligible” cardmembers were identified in the Agreement as cardmembers who were
“(a) a Personal (individual/consumer) Diners Club Cardmember or (b) a Corporate/Government/
Company/University Diners Club Cardmember which CDC in its sole discretion has determined
shall be eligible for the Plan.” (Agreement Art. (F).) This language indicates that the parties
contemplated a corporate plan, in some form, even back in 1990.

Clever Ideas likewise was bound by the Agreement only to “use its best efforts to promote

and publicize to restaurants” the availability of the plan, and also agreed to establish and maintain

4 With whom CDC contracted to administer the LeCard plan.

7


issue Diners Club cards with the LeCard marks “at the first possible opportunity to do so.” (Letter
from Higgins to Schneider of Jan. 28, 1997, Ex. C to Answer and Counterclaim.) As Citicorp
argues here, whatever the merits of Clever ideas’ argument that it did not grant Citicorp permission
to use the mark, that argument is plainly tardy.

As this court understands Clever Ideas’ position, Clever Ideas claims that it could not have
been on notice of Citicorp’s infringement because until 2002, Citicorp tricked Clever Ideas into
believing that Citicorp had the right to use the LeCard trademark in connection with the Corporate
Card program. (Clever Ideas’ Memorandum of Law in Opposition to Citicorp’s Motion for Judgment
on the Pleadings, at 5, 6.) Apart from the peculiarity of the argument that an infringing party can
mislead the copyright owner into believing the infringer has the right to infringe, the court notes that
Clever Ideas has misconstrued Citicorp’s position: Citicorp insists it did have permission under the
1990 Agreement to create a Corporate Card program,” but that the 1990 Agreement did not set
forth the terms on which fees from such a program would be shared. !n any event, the court is
unaware of any case law (nor has Clever Ideas cited any) holding that Citicorp’s alleged lack of
candor excuses a trademark owner from the responsibility to diligently protect his own intellectual
property. Safeway Stores, Inc. v. Safeway Quality Foods, Inc., 433 F.2d 99, 103 (7th Cir. 1970)
(plaintiff chargeable with information it might have received had due inquiry been made). Clever
Ideas’ delay of at least five and one half years in bringing suit to protect its trademark is
unreasonable.

The Lanham Act does not set a statute of limitations for a federal unfair competition or a
trademark infringement claim, but the Seventh Circuit explained in Hot Wax that courts should refer
“to analogous state statutes of limitations to determine whether a presumption of laches should

apply.” 191 F.3d at 821. The three-year statute of limitations under the Illinois Consumer Fraud

% Indeed, the list of “eligible” cardholders appended to the 1990 Agreement does
include corporate cardmembers. (Agreement Art. I(F).)

21


where the contract also contains some objective criteria by which to judge whether the proper effort
has been made. In Heritage Remediation/Engineering, Inc. v. Wendnagel, No. 89 C 413, 1989 WL.
153373, * 6 (N.D. Ill. Nov. 9, 1989), the parties entered into two written agreements concerning
environmental cleanup of a parcel of land owned by defendants. 1989 WL 153373 at* 1. Because
the specific amount of contamination on defendants’ property was not known at the time of the first
agreement, plaintiff's duties were limited to using its “best efforts” to remove as much lead and
xylene as possible. With respect to xylene, the stated goal was to remove all xylene in excess of
2.1 parts per million, although the contract explicitly provided that failure to meet it was not to be
considered a breach. /d. at*2. Approximately two weeks after entering into the initial contract, and
soon after the plaintiff had begun work, the parties determined that far more contamination was
present than had been anticipated. Therefore the parties entered into an “Addendum Agreement,”
estimating more precisely the amount of xylene and lead to be excavated. By the agreed deadline,
plaintiff had excavated more than the estimated amount of contaminated material, but defendants
refused to pay, arguing that because the contract required only that plaintiff use its “best efforts”
to meet target levels, the provision lacked mutuality and was unenforceable. /d. at*4-5. The court
rejected the argument, noting that both the original agreement and the addendum provided
objective standards (weight estimates and target levels) sufficient to measure the plaintiff's efforts.
Id. at *6.

In another case, cited by both parties here, an Illinois court has observed that a contract's
original indefiniteness can be cured when the parties subsequently specify the intended
performance. In Gustafson v. Lindquist, 40 IIl.App.3d 152, 154, 351 N.E.2d 280, 282 (1st Dist.
1976), the defendant issued three successive promissory notes to the plaintiff, each one replacing
the other. The third note included an increase over the second which represented a bonus
payment to plaintiff, initially orally agreed to by the parties a year earlier when plaintiff promised to

work the night shift in defendant's machine shop. The oral agreement did not specify a specific

27


Citicorp’s Counterclaim, in which Citicorp alleges that Clever Ideas materially breached the 1990
Agreement. !n its cross-motion, Citicorp argues that the challenged provisions of the 1990
Agreement are indeed enforceable; in the alternative, Citicorp contends, should the court conclude
those provisions are invalid, it must declare the entire 1990 Agreement unenforceable because
without those provisions, the Agreement is rendered meaningless. Finally, Citicorp requests
judgment on Count IX of Clever Ideas' complaint (for a declaratory judgment that Clever Ideas did
materially breach the agreement and that Citicorp is not bound by the non-compete provision of
the Agreement).

The court will address ail of the parties’ motions in this opinion, but notes that they are
governed by different standards. For purposes of a motion for judgment on the pleadings, the court
considers the pleadings alone, which include the complaint, the answer, and any written
instruments attached as exhibits. FED. R. Civ. P 12(c); Northern Indiana Gun & Outdoor Shows,
Inc. v. City of South Bend, 163 F.3d 449, 452 (7th Cir. 1998) (citations omitted). When reviewing
a 12(c) motion for judgment on the pleadings, the court will employ the same standard as when
reviewing a motion to dismiss under Rule 12(b), and will grant such a motion if “it appears beyond
doubt that the plaintiff cannot prove any facts that would support his claim for relief.” Northern
Indiana Gun & Outdoor Shows, Inc. v. City of South Bend, 163 F.3d 449, 452 (7th Cir. 1998)
(citations omitted). The court views the facts in the complaint in the light most favorable to the
nonmoving party, but is not obliged to ignore any facts that undermine the plaintiff's claim, nor to
assign any weight to unsupported conclusions of law. /d. (citations omitted).

On a motion for summary judgment, on the other hand, the court is free to consider
materials going beyond the pleadings. Summary judgment is proper when “the pleadings,
depositions, answers to interrogatories, and admissions on file together with the affidavits, if any,
show that there is no genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law.” FED. R. Civ. P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S.

3


restate our current written agreement since it does not reflect the current relationship between us.”
(/d.) Turk asked Suckow to accept the proposals in the letter by signing at the bottom, which he
did do on March 31, 1999. (/d.) On or shortly after March 30, 1999, Citicorp paid Clever Ideas
$263,789, one-half of the five percent fee (without interest) that had accrued through the end of
December 1998. (/d.)

Citicorp has not paid Clever Ideas any portion of the one-half of the five percent fee
collected from corporate cardmembers since December 1998, nor has Citicorp otherwise
compensated Clever Ideas for Citicorp’s use of the LeCard marks in connection with the Corporate
Card plan. (/d. {[ 34.)

5. The Agreement is Terminated

On April 17, 2002, Mark Smalls, Executive Vice President of Citicorp, sent written notice to
Clever Ideas of his intention to terminate the Agreement. (Letter from Smalls to Suckow of
April 17, 2002, Ex. G to Complaint.) Smalls stated that Clever Ideas had breached the Agreement
in purportedly material ways, and for that reason, threatened to terminate the Agreement unless
the breaches were cured within 30 days. Specifically, the letter charged Clever Ideas with the
following breaches of the Agreement:

(1) Failure to use its best efforts to promote and publicize to restaurants the
availability of the Plan (as defined in the Agreement);

(2) Failure to maintain Member Restaurants (as defined in the Agreement) of
a sufficient number and quality to sustain the Plan;

(3) Failure to maintain a sufficient number of Member Restaurants to maintain
consumer appeal of the Plan;

(4) Failure of CLI to perform all services in accordance with the highest
standards of the industry as required by the Agreement, thereby diminishing
the goodwill of CDC’s brand name and trademarks; and

(5) Failure to provide CLI’s balance sheet and income statement as required by

the Agreement so that CDC may determine whether or not there has been
a materia! adverse change in CLI’s business.

14


Ideas’ failure to furnish Citicorp with a balance sheet and income statement information
constitutes a material breach of the 1990 Agreement. Under Article 1V.D.3(b), CDC

is entitled to terminate the 1990 Agreement if it determines “that there is a materially

adverse change in CLI's business or financial condition... .”. Obviously, the only

means by which CDC could determine whether CLI is financially capable of fulfilling

its obligations under the 1990 Agreement and maintaining the Plan is to review its

annual balance sheet and income statements . . . . [T]he continual decline in the

number of restaurants . . . indicated to CDC that CLI's financial condition had
probably substantially deteriorated. Because CLI failed to provide financial
information . . . CDC was left with no choice but to rely on the information that it

had, which indicated a “materially adverse change in CLI’s business or financial

condition.”
(Id.)

Upon termination of the Agreement, Citicorp did not immediately issue new Diners Club
cards that do not bear the LeCard mark. Rather, Citicorp stated that it would “replace [such cards]
in the ordinary course of its business as cards are renewed,” even though Clever Ideas has alleged
that replacing the cards in such fashion could take up to three years to accomplish. (Complaint
150.) Citicorp has maintained that because Clever Ideas materially breached the contract, Citicorp
does not have any obligation to comply with the Agreement’s requirement that Citicorp continue
to perform its obligations under the Agreement for 180 days following its termination, and has
informed Clever Ideas that it will not comply with the Agreement’s wind-down provisions. (/d. 952.)

B. Additional Factual Background Relevant to the Parties’
Cross Motions for Partial Summary Judgment

For the purposes of the parties’ cross-motions for summary judgment, the court shall
summarize additional facts contained in the parties’ Rule 56 statements of material fact and
additional documents submitted in connection with those motions.

In a letter dated December 9, 1993, Patricia Foell, Senior Vice President for Citicorp,
advised Lee Suckow of Clever Ideas that she did “not believe the current LeCARD program offers
a sufficient number of restaurants in most markets to maintain consumer appeal.” (Letter from

Foell to Suckow of Dec. 9, 1993, Ex. 2(A) to Citicorp’s 56.1.) Foell’s letter attached a list of “the

16


(Counts V and VI!) and unfair competition under section 43(a) of the Lanham Act (Count VI).
Finally, Clever Ideas alleges that Citicorp’s termination of the parties’ agreement violates the Illinois
Uniform Deceptive Trade Practices Act (Count V1) as well as the implied covenant of good faith and
fair dealing (Count X). In Count IX, Clever Ideas also requested a declaratory judgment pursuant
to 28 U.S.C. § 2201.

These claims encompass two alternate theories. The first theory is that Citicorp breached
the 1990 Agreement by refusing to split the fees generated from the Citicorp Corporate Card
program on an equal basis with Clever Ideas. The second theory is that the Corporate Card
program was not covered by the parties’ 1990 Agreement at all, and therefore Citicorp’s use of the
LeCard mark in conjunction with that program constitutes copyright infringement.

Citicorp filed an Answer and Counterclaim against Clever Ideas, alleging breach of contract
in Counts | and Il, and seeking injunctive relief in Count Ill. Citicorp now moves for judgment on
the pleadings, arguing that any claims brought under Ciever Ideas’ second theory (the portions of
Counts |, II, and til that apply to the Corporate Card program, and the entirety of Counts V, VI, VII,
and VIII) are time-barred. Citicorp maintains that Clever Ideas was aware at least as early as 1997
that Citicorp was offering the LeCard restaurant program to corporate cardholders, and therefore
waited too long to file its infringement claims against Citicorp. Citicorp also argues that Counts V
through Vii depend upon the conclusion that Citicorp was not authorized to use the LeCard mark
and logo in connection with the Corporate Card program, but because the pleadings show that
Citicorp did have a license to use the mark and logo, these claims fail as a matter of law.

in addition, the parties have filed cross-motions for partial summary judgment. Clever Ideas
requests that the court declare that the provisions of the 1990 Agreement that Citicorp invoked as
grounds for terminating the contract are unenforceable as a matter of law. Accordingly, Clever
Ideas urges, the court should declare Citicorp bound by the three-year non-compete provision
contained in the 1990 Agreement. Clever Ideas also moves for summary judgment on Count | of

2


Are the Contractual Provisions Enforceable?

Citicorp alleges that Clever Ideas breached the following provisions of the 1990 Agreement:

(1)

(2)

(3)

(4)

(5)

“CLI agrees to use its best efforts to promote and publicize to restaurants the
availability of the Plan.” (Agreement Art. II!(C).)

“CLI agrees to establish and maintain Member Restaurant Agreements with a
sufficient number and quality of restaurants to adequately support the Plan.” (/d.)

“CDC shall have the right to terminate this Agreement effective upon written notice
received by CLI in the event CDC determines, in its sole judgment: (i) that the Plan
has insufficient consumer appeal, or (ii) that there are an insufficient number or type
of Member Restaurants to maintain consumer appeal of the Plan.” (Agreement Art.
IV(D){(3)(c).)

“CLI shall not take any action that could be detrimental! to the goodwill associated
with the Diners Club Marks or with CDC. CLI shall operate its business and perform
all services in accordance with the highest standards of quality associated with the
industry and in accordance with good trademark practice.” (Agreement Art.
IV(A)(1){b).)

“CLI agrees to provide to CDC, on an annual basis and within 30 days after its
preparation, a copy of CLI’s annual balance sheet as of the end of CLI’s fiscal year
and CLI’s income statement for such year.” (Agreement Art. IV(D)(3)(b).)

Clever Ideas argues that because each of these provisions is indefinite, each is

unenforceable under Itlinois law. Accordingly, Clever Ideas asserts, its alleged failure to comply

with these terms could not constitute a material breach of the Agreement, nor can they be invoked

to support Count | of Citicorp’s Counterclaim. (Clever Ideas’ Memorandum of Law in Support of

its Motion for Summary Judgment, hereinafter “Clever Ideas’ Summary Judgment Mem..,” at 7.)

Citicorp responds that courts favor enforceability of contractual terms, and that these

provisions are not so indefinite or ambiguous that they must be declared unenforceable. (Citicorp’s

Memorandum of Law Responding to Clever Ideas’ Motion for Partial Summary Judgment and in

Support of Citicorp’s Cross-Motion for Partial Summary Judgment, hereinafter “Citicorp's Summary

Judgment Mem.,” at 7-9.) The court shall address each provision, but notes that the parties devote

the most attention to the “best efforts” clause. Additionally, because the second and third

25


UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS gn
EASTERN DIVISION OOGKETED

CLEVER IDEAS, INC., AUG 2 2 2003

an \ilinois corporation,

Plaintiff/Counterdefendants,

CITICORP DINERS CLUB, INC., a
Delaware corporation,

)
)
)
)
)
v. ) No. 02 C 5096
)
) Judge Rebecca R. Pallmeyer
)
)
)

Defendants/Counterplaintiff.

MEMORANDUM OPINION AND ORDER

This case arises from the parties’ now-terminated business venture to provide dining
discounts at certain restaurants to holders of Defendant's Diners Club charge cards. Plaintiff
Clever Ideas, Inc. (“Clever Ideas” or “CLI") designed and implemented the restaurant discount
program, in which Diners Club cardholders received discounts at participating restaurants and
Defendant Citicorp Diners Club (“Citicorp” or “CDC") and Clever ideas shared the membership fees
paid by cardholders. Clever Ideas filed this action against Citicorp, a franchisee of the issuer of
Diners Club charge cards, after Citicorp terminated the parties’ 1990 Agreement in April 2002.

Clever Ideas’ complaint alleges several claims against Citicorp. First, Plaintiff claims that
Citicorp’s failure to immediately repiace cards bearing Plaintiff's trademarked “LeCard” logo,
following termination, constituted statutory and common law trademark infringement (Counts | and
1), and unfair competition under section 43(a) of the Lanham Act (Count Ill).*- Second, Plaintiff
claims Citicorp’s use of the LeCard mark in a second program, involving corporate card holders,

constituted a breach of contract (Count IV), common law and statutory trademark infringement

' When Clever Ideas filed the Complaint, it also filed a motion for a preliminary
injunction, asking the court, among other things, to order Citicorp to immediately issue new credit
cards to all its customers with the LeCard logo eliminated. Clever Ideas later withdrew that motion.

(See Docket No. 3-1.)


face. Whether Clever Ideas breached it, whether such breach was material, and whether the
breach was sufficient for Citicorp to conclude that Clever Ideas’ financial condition had materially
worsened, are issues to be decided on a later date.

Because the court denies Clever Ideas’ motion for partial summary judgment and declines
to hold the contested provisions of the 1990 Agreement unenforceable, it is unnecessary to
address Citicorp’s cross-motion. In that motion, Citicorp argued that if the provisions discussed
above were unenforceable, the entire Agreement was rendered meaningless. Having concluded
that there are disputes of fact concerning the enforceability of each of the challenged provisions,
the court need not address this aspect of Citicorp’s motion.

B. Material Breach

Both parties have also asked the court to grant summary judgment on the question of
whether Clever Ideas’ alleged failure to meet the obligations imposed by these provisions may fairly
be characterized as a “material breach.” If Clever Ideas’ actions are material breaches of the 1990
Agreement, Citicorp argues that it is not bound by the non-compete provision. The record is wholly
insufficient on this issue, however, and the court concludes neither side has met its burden here.
Citicorp emphasizes the March 1999 letter from Turk which imposed conditions for Clever Ideas’
participation in the profits from the Corporate Card program, but Citicorp itself insists that the
corporate program was not part of the parties’ original Agreement. And in fact Citicorp paid Clever
Ideas on the Corporate Card program on only one occasion, presumably because Clever Ideas
failed to meet the March 1999 condition. The court is therefore not prepared to conclude that
Clever Ideas’ failure to meet the 1999 requirements constitutes a breach of the parties’ earlier
Agreement. In this court's view, the parties’ failure to include specifics concerning Clever Ideas’
“best efforts” obligation militates against any determination that, as a matter of law, Clever Ideas’

performance constituted a material breach. Thus, Clever Ideas may well be able to demonstrate

33


figure for the bonus, but the promissory note specified an amount. /d. After defendant refused to
pay a portion of the third note, plaintiff sued. The court held that the defendant was bound by the
promissory note, and that the earlier agreement to provide a bonus did not fail for indefiniteness
because the parties later came to a specific agreement. /d. at 157, 351 N.E.2d at 284.

In at least a few other cases, courts have enforced “best efforts” obligations even without
any additional objective criteria. In Muka v. Estate of Muka, 164 Ill App.3d 223, 226, 517 N.E.2d
673, 676-77 (2d Dist. 1987), for example, plaintiff sued to enforce a contract in which he agreed
to work in the defendant's new business in return for $1 million worth of stock in that business. The
letter agreement required only that plaintiff work “reasonably hard & smart at things in the next
year.” /d. at 226, 517 N.E.2d at 675. Likening that obligation to a “best efforts” provision, the court
held that although its description was imprecise, plaintiff's obligation to work hard “at things”
(presumably, business projects) was enforceable, and remanded to the trial court for a jury
determination of whether he had met that obligation. /d. at 231, 517 N.E.2d at 678.

Similarly, in Gentieu v. Tony Stone Images/Chicago, inc., 255 F.Supp.2d 838, 844 (N.D.
lll. 2003), a photographer entered into an contract appointing defendant as her exclusive licensing
agent and requiring that the agent “use its best efforts to license the Images and to maximize the
overall earnings... .” /d. at 867. Because of the exclusive nature of the license, plaintiff's
compensation for images was completely dependent on defendant's sale of those images.
Accordingly, the court held that the “best efforts” clause in the contract was enforceable as “an
express articulation of that otherwise implied obligation” to use “good faith, reasonable efforts to
promote [Plaintiff's] images.” /d. at 868. See also W.P. Iverson & Co. v. Dunham Mfg. Co., 18
IILApp.2d 404, 152 N.E.2d 615, 620 (1st Dist. 1958) (upholding exclusive distribution contract
where seller did not have to sell a minimum amount of goods, but promises to “exercise its best

effort to build up a market for and sell the product in question and would exercise good faith and

28


associated with their participation.’ Higgins discussed the cost of distributing restaurant directories
($2.00 each) to each of IBM's cardmembers, and complained that their monthly spending did not
generate a profit over the cost of distributing the directories. (/d.) Higgins estimated that if IBM
were to double its usage at LeCard restaurants, resulting in $720,000 total annual sales for IBM
card holders, the revenue generated would be $43,200 ($720,000 x .06).° Higgins noted that “[t]he
6% is assumed based upon 3.5% additional revenue to Diners Club currently generated by the
LeCARD charges and 2.5% of additional revenue generated should CLI agree to split equally with
Diners Club the 5 percentage point reduction in savings offered to corporations.” (/d.)
Following further negotiations, Clever Ideas apparently softened its demand that the LeCard
logo appear on every corporate Diners Club card. A January 28, 1997 letter from Higgins to
Schneider set forth terms “by which CLI would agree to permit the activation of the LeCARD
Program for Citicorp corporate Diners Club cardholders without displaying the LeCARD logo on the
back of those Diners Club cards.” (Letter from Higgins to Schneider of Jan. 28, 1997, ex. C to
Citicorp’s Answer and Counterclaim.) Higgins stated that Clever Ideas would agree to this as long
as “[a]ctivation would apply only to Citicorp corporate Diners Club cards,” and “[ajll cards . . . would
be issued new corporate Diners Club cards with the LeCARD logo displayed on the back of the
card at the first possible opportunity to do so.” (/d.) Thus, as of January 1997, Clever Ideas was

at the very least aware of Citicorp’s pian to initiate the Corporate Card Plan, and was eager to have

7 Higgins’ letter indicates that IBM was already actively participating in the LeCard
program.
8 Higgins’ letter does not clarify whether this additional revenue would go to Clever

Ideas only, or Citicorp as well (6 percent was apparently the amount that Higgins believed the
parties were generally recovering under the Agreement).

9 The impression given by this assertion is that it was Clever Ideas, and not Citicorp
which benefitted from the 5 percent spread, which is inconsistent with most of Clever Ideas’ other
assertions described herein. Viewed in the light most generous to Clever Ideas, the letter might
be understood as reflecting Higgins’ assumption that at some future point, Clever Ideas would be
recovering the profits.

12


(/d.) (Numbers supplied by the court). Smalls referenced the March 1999 letter from Turk in which
Clever Ideas agreed to meet specific targets, and stated his belief that Clever Ideas failed to meet
those goals. To cure the alleged breaches, Smalls demanded that within 30 days, Clever Ideas
increase the number of member restaurants to 1,800 and provide Citicorp with its required financial
statements. (/d.) Otherwise, Smalls wrote, “CDC will have no alternative but to terminate the
Agreement at that time.” (/d.)

Clever ideas’ attorney, Wendi Sloane, responded to the allegations contained in Smalls’
letter in a May 14, 2002 letter to Citicorp’s counsel, Javier Rubinstein. (Letter from Sloane to
Rubinstein of May 14, 2002, Ex. H to Complaint.) Sloane denied that Clever Ideas had materially
breached the Agreement, and noted that to the extent Clever Ideas’ efforts had not achieved
success, this was due to Citicorp’s own material breaches of the Agreement. (/d.) Sloane also
questioned Citicorp’s assumption that the goals listed in the March 1999 letter were contractual
obligations, and therefore denied that Clever Ideas’ failure to meet those goals constituted a
material breach of the Agreement. (/d.) Sloane further responded to Citicorp’s complaint about
the number of member restaurants by pointing out that the Agreement contemplated such an issue
as a basis for termination, not as a material breach. Therefore, if Citicorp were to terminate the
Agreement for this reason, it would be subject to the three-year non-compete provision of the
Agreement, and would be required to issue new Diners Club cards without the LeCard mark on
them. (/d.)

In a May 21, 2002 letter, Rubinstein denied that Citicorp had breached the Agreement.
(Letter from Rubinstein to Sloane of May 21, 2002, Ex. } to Complaint.) He asserted that because
the 30-day period since Citicorp’s initial April 17, 2002 letter to Clever Ideas had passed and Clever
Ideas had failed to meet Citicorp’s demands, Citicorp now considered the 1990 Agreement
terminated. (/d.) The letter reiterated what Citicorp considered to be Clever Ideas’ breaches of the
Agreement, mirroring the charges made in the April letter. (/d.) Rubinstein declared that Clever

15