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Timestamp: 2019-04-25 14:06:39+00:00

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RE: Whether Franchisor can obtaindamages and injunctive relief after an involuntary termination of a franchise agreement?
Whether franchisor canobtain damages and injunctive relief for an involuntary termination of franchise agreement?
Adam terminated the franchise relationship of its moving service business because Robert defaulted in its payment of royalties and advertising fees, and it failed to submit requiredmonthly sales reports. After termination, Robert continued to use Adam’s names, trade names, and trademarks. Under the Lanham Act standard for trademark infringement,the likelihood of confusion standard, Robert's continued operation of the moving business created a risk of consumer confusion. Plaintiff(Adam) brought an action for unfair competition and trademark infringement and for breach of several agreements that the defendants executed in connection with the franchises. Plaintiff seeks damages and injunctive relief.
Give grounds for termination of franchise agreement & don’t include the IP law in your research Memo.
IndianaFranchise Disclosure Act, Indiana Deceptive Franchise Practices Act,Lanham Actand Case law.
In the present matter Adam terminated the franchise relationship for non-payment of royalties. After termination Robert continued using Adam’s names, trade names, and trademarks. Indiana statutes and cases provide clear standards about termination, trademark infringement, and unfair competition. The research revolves around the validity of the termination for good causeand whether the misuse of Adam’s names, trade names, and trademarks amount to unfair competition and makes Robertsubject to a permanent injunction and an award of damages?
The Practices Act expressly provides for a cause of action against the franchisor in cases where a franchise agreement contains a provision prohibited by the Practices Act, and/or where the franchise agreement is terminated without good cause or not renewed without good cause. The Practices Act further requires at least ninety days notice for termination of a franchise or election not to renew a franchise, unless the franchise agreement otherwise provides. Ind. Code § 23-2-2.7-3. If the franchise agreement provides that the agreement may be terminated at any time, failure to give ninety day notice before termination is not in violation of the Practices Act. Snihurowycz v. AAMCO Transmissions, Inc., 418 N.E.2d 1190(Ind. Ct. App. 1981).
Adam terminated the franchise relationships of its moving service business because Robertfailed to pay royalties and advertising fees or to submit monthly sales reports.
In the present query,the parties had a valid franchise agreement thatincludes the clause that non-payment of royalties constitutes one form of “good cause” that justifies termination.
Even after termination, Robert continued to use Adam's names, trade names, and trademarks. These facts raise a strong risk of consumer confusion. After termination,Robert continues to use the former franchisor's trademark and so Adam may have a cause of action for fraud.
A strong risk of consumer confusion arises when a terminated franchisee continues to use the former franchiser's trademark, actions which constitute a fraud.3 J. Thomas McCarthy, McCarthy on Trademarks and Unfair Competition § 25:31 (4th ed. 2005). Once a franchise contract is terminated, the former franchisee has no authorization or consent to continue to use the mark. Id. Use of the mark must cease once permission to use it no longer exists. Continued use of licensed trademarks by the franchisee after the franchise contract has been terminated constitutes breach of contract or trademark infringement. The terminated dealer who refuses to change the mark is an infringer.
Franchisor also needed to demonstrate that, once the agreement was terminated, Franchisees' continued performance of the acts sought to be enjoined would be a violation of Franchisor's legal rights.
The analysis under the Lanham Act for . . . unfair competition also applies to claims for unfair competition under Indiana common law. Felsher v. University of Evansville,755 N.E.2d 589, 598 (Ind. 2001) Indiana courts have created a cause of action for unfair competition, defined as "the attempt to create confusion concerning the source of the unfair competitor's goods. This common law tort was historically considered a subspecies of the class of torts known as tortious interference with business or contractual relations. (Internal citations omitted).
Unfair competition . . . does not describe a single course of conduct or a tort with a specific number of elements; it instead describes a general category into which a number of new torts may be placed when recognized by the courts. The category is open-ended, and nameless forms of unfair competition may be recognized at any time for the protection of commercial values.
Although the law of unfair competition has been defined as the palming off of ones goods or services as that of some one else, and the attempt thereof, the tort of unfair competition is much broader and also includes actions for the interference with a contract or business relationship, as well as for predatory price cutting." (internal citations omitted). See also Moseley v. Secret Catalogue, Inc., 537 U.S. 418, 428, 123 S. Ct. 1115, 155 L. Ed. 2d 1 (2002) "Traditional trademark infringement law is part of a broader law of unfair competition that has its sources in English common law, and was largely codified in the Trademark Act of 1946 (Lanham Act)" (internal citations omitted).
Indiana courts have created a cause of action for unfair competition, defined as "the attempt to create confusion concerning the source of the unfair competitor's goods." Westward Coach Mfg. Co. v. Ford Motor Co., 388 F.2d 627, 633 (7th Cir. 1968), cert. denied, 392 U.S. 927, 20 L. Ed. 2d 1386, 88 S. Ct. 2286 (1968) (citations omitted). See Rader v. Derby, 120 Ind. App. 202, 89 N.E.2d 724 (1950); Hartzler v. Goshen Churn & Ladder Co., 55 Ind. App. 455, 104 N.E. 34 (1914).
There are several factors upon which a court must base the exercise of its equitable discretion when deciding whether to issue a preliminary injunction. The party seeking the injunction must make at least a prima facie showing of the violation of some legal right. Indiana Annual Conference Corporation v. Lemon(1956), 235 Ind. 163, 167, 131 N.E.2d 780, 782. The movant also must demonstrate that he will suffer irreparable harm if his request for a preliminary injunction is denied. Id. Indiana courts have also held that the party requesting a preliminary injunction must show the lack of an adequate remedy at law, McKain v. Rigsby, 250 Ind. 438, 444, 237 N.E.2d 99, 103(1968), although in this case, as in most cases, proof of one necessarily serves as proof of the other. Steenhoven v. College Life Ins. Co. of America, Ind.App., 458 N.E.2d 661(1984), 665, rehg denied, , Ind.App., 460 N.E.2d 973(1984). The extent to which the movant has shown the likelihood of success on the merits of his claim will affect the degree and likelihood of the potential harm the movant must demonstrate. SeeWells v. Auberry (1982), Ind. App., 429 N.E.2d 679, 683, trans. denied.
In addition,the court must weigh the relative potential harms to the parties stemming from the issuance of an injunction as well as the effect of the grant or denial of the injunction on the public interest. Rees v. Panhandle Eastern Pipe Line Co., 176 Ind.App. 597, 609, 377 N.E.2d 640, 648(1978).
that the defendant used the trademark in a manner likely to confuse customers.
There is a high risk of consumer confusion when a former Franchisee continues to operate under the Franchisor's trademarks because customers will continue to associate the former Franchisee with the Franchisor. Merry Maids Ltd. P'ship v. Kamara, 33 F. Supp. 2d 443, 445 (D. Md. 1998); see Precision Tune Auto Care, Inc. v. Pinole Auto Care, Inc., No. 00-1748-A, 2001 U.S. Dist. LEXIS 24840, at *14 (E.D. Va. Oct. 15, 2001). In such situations, courts have held that there is a likelihood of success on the merits for a claim of trademark infringement.
From the facts of the present case,a strong argument exists thatRobert infringed Adam’s trademark and indulged in unfair competition practices after the termination of the franchise agreement, which makes him liable to pay the damages to Adam.
Based on the information discussed above, we can conclude that the termination of the franchise relationship was valid and for good cause. Further,Robert’s continued use of the names, trade names, and trademark after termination gives rise to claims for unfair competition and trademark infringement. After examining the issues a court may order for a permanent injunctionand the court may orderRobert to pay the damages to Adambased on the infringement.

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