Trademark Infringement Headlines Offer Franchisors Important Lessons
This past week has seen several headlines about significant trademark infringement lawsuits. Many franchisors live and die by their trademarks, and their executives need to understand the value of strategic trademark protection and the importance of swift trademark enforcement.
This article takes a look at what franchisors need to be taking away from two recent (mostly) successful trademark infringement lawsuits.
"Griller" Fast Food Chain Defeats "The Original Griller," But Loses to Others
The owner of the Griller fast food franchise chain sued three different restaurant operators operating under the trademarks The Original Griller, Griller King and The Griller Hut, respectively. The Griller franchise owned two registered trademarks covering, among other things, food and restaurant services.
The Griller franchise prevailed in its trademark infringement suit against The Original Griller. This was due, in part, to the fact that The Original Griller’s logo featured the word “Griller” more prominently than the other included words.
However, Griller lost on its trademark infringement claims against the other operators. This was due to the fact that the court considered “Griller” to be largely “descriptive” of the service and products that Griller restaurants sell—preparing and selling grilled chicken.
The Lesson: Context is important when choosing a trademark. First, the strength of a trademark must be determined in the context of the products and services for which it is used. Descriptive trademarks (even registered ones) are generally going to have a much narrower scope of protection, whereas suggestive, arbitrary and creative (fanciful) trademarks are going to have wider enforceability. Second, the overall makeup of a trademark can determine whether the trademark is infringing. The ‘The Original Griller’ trademark was found to be infringing because the owner emphasized the ‘Griller’ term (and this trademark also seems much more descriptive as a whole), whereas ‘Griller King’ and ‘The Griller Hut’ incorporate a descriptive term into a trademark that creates a more unique and distinctive commercial impression.
$6.1 Million Verdict Upheld in Trademark Lawsuit Between Skydiving Service Competitors
In another case, Skydive Arizona, one of the nation’s largest skydiving centers, won a $6.1M trademark infringement verdict against Skyride, a service that connects skydivers to skydiving centers around the country. Skyride’s marketing strategy apparently included hosting several Arizona skydiving- related websites, including one located at the domain name, skydivearizona.net.
Skydive Arizona actually won its lawsuit on a number of bases, including false advertising, unfair competition, cybersquatting, and of course trademark infringement. The company’s success was based, in part, on the fact that some consumers had purchased certificates from Skyride thinking that they could redeem them with Skydive Arizona—which wasn’t the case.
On appeal, the 9th Circuit Court of Appeals affirmed the $6.1M award.
The Lesson: Trademarks are big business, and misleading consumers and causing confusion can give rise to substantial liability. Intentionally misleading consumers and trying to benefit from someone else’s goodwill will only make matters worse. Here, too, the plaintiff’s trademark (Skydive Arizona) seems fairly descriptive, but the company was nonetheless able to obtain a substantial verdict due to the defendant’s apparent willful conduct.
Jeff Fabian assists business owners in protecting their brands so that they can stay focused on running their businesses. Follow Jeff on Twitter @FabianOnIP.
This article is provided for informational purposes only, and does not constitute legal advice.
"Buying" A Franchise
Here at FranchiseHelp we’re constantly asked about the opportunity to buy a franchise. Unfortunately I’m going to have to tell you something that might disappoint you. You can’t “buy” a franchise. In reality you are engaging in a “leasing” transaction rather than a “purchasing” transaction. Why is it a lease? In any franchise deal, the franchisee receives the assets up front, but only for a period of time - the term of the franchise agreement. The term of the agreement may run for five to ten years, or in some cases it may run for as little as a year or two. At the end of the day the renewals of these agreements are at the option of the franchisor, and the reasons for not renewing an agreement should be completely spelled out in the Franchise Disclosure Document (FDD) and franchise agreement.
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The primary difference between equity financing and debt financing is that with debt financing, you will have an obligation to pay back the borrowed sum at a stated interest rate, but you will retain control of the business; in equity financing you are giving up a part of the business to an investor or investors in exchange for their financing. The investors may claim some control of the business operations; they will also have some ownership in the assets and potentially will take a share in the earnings. You will not have a set debt obligation to repay as you would with a monthly loan payment to a bank. The investor will be taking a risk as to when and how much of the investment he or she will recoup, as well as whether there will be a return on the investment.
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