Los Angeles attorneys Calvin Davis and Gary Collis recently prevailed on a hard fought application for a preliminary injunction.
Gordon & Rees’ client is a franchisor that franchises hundreds of food service establishments throughout the United States and in several other countries. Pursuant to written franchise agreements with fixed terms of years, the franchisor requires that its franchisees operate their establishments according to strict quality, safety, and cleanliness standards. The franchisees receive a license to use the franchisor’s trademarks while operating their establishments.
In 2014, a dispute arose concerning a franchisee’s failure to comply with the franchisor’s standards. The franchisee’s establishment was dirty and his employees failed to use the franchisor’s required recipes and food preparation methods, among other violations. The franchisor terminated the franchise agreement but the franchisee continued to operate his business under the franchisor’s trademarks.
Days before the franchisor was to file a federal lawsuit against the franchisee for violating the federal Lanham Act and California trademark and unfair competition laws, the franchisee filed a preemptive lawsuit in the Los Angeles County Superior Court. The franchisee asserted that the franchisor had breached the franchise agreement’s detailed termination provision by prematurely terminating the contract on pretextual grounds. The franchisor asserted its trademark and unfair claims by cross-complaint and immediately moved to preliminarily enjoin the franchisee’s use of its trademarks. Adding to the challenges presented for securing injunctive relief was that fourteen months had passed from termination of the franchise at this point.
Nevertheless, the Superior Court granted the preliminary injunction. It found that the franchisor was likely to prevail on its Lanham Act claim. It rejected the franchisee’s argument that he was entitled to use the franchisor’s trademarks due to the franchisor’s allegedly improper termination of the franchise agreement. Furthermore, the Superior Court found that the franchisor would suffer irreparable harm if the franchisee was allowed to continue to use its trademarks while the lawsuit progressed. The franchisee’s unauthorized use of the franchisor’s trademarks presented a clear threat to the franchisor’s reputation and goodwill, among its most valuable assets. The Superior Court also concluded that, in the franchising context, the potential consumer confusion is very high when a terminated franchisee continues to operate its business under the franchisor’s trademarks. Finally, the court rejected arguments that delay in moving for an injunction constituted estoppel or waiver of the franchisor’s rights to force the franchisee to de-identify.
The injunction requires that the franchisee immediately cease use of any of the franchisor’s trademarks as well as use of any of the franchisor’s trade secrets, including operating procedures.