Opinion ID: 521946
Heading Depth: 2
Heading Rank: 2

Heading: The Secret Formula

Text: 14 As grounds for termination of the franchise, Matusa claimed that Inc. had failed to make the rums strictly in accordance with the secret formulas and processes called for in the franchise agreement. Matusa claimed that some time after the Abascals were fired by Matusa and Limited, the defendants began to use commercially purchased extracts and concentrates instead of the natural prune and vanilla bean macerations required to make Formula # 2. Until this time, Inc. had purchased the formula from Limited. 15 Matusa alleges that Inc.'s actions amount to a breach of the sub-franchise contract as a matter of law. Matusa also claims that the defendant's continued use of the trademark after receiving notice of termination constitutes federal trademark infringement under the Lanham Act, 15 U.S.C. Sec. 1114 (1982), as well as several violations of state law, entitling Matusa to damages and an accounting. 16 It is clear that a trademark owner has a duty to exercise control and supervision over the licensee's use of the mark. Sheila's Shine Prods., Inc. v. Sheila Shine, Inc., 486 F.2d 114, 124 (5th Cir.1973). 6 Thus courts have held that a franchise may be terminated for breach of contract where the franchisee sells a product under the trademark owner's mark which is not made or approved by the trademark owner. See Amoco Oil Co. v. D.Z. Enters., Inc., 607 F.Supp. 595 (E.D.N.Y.1985). In this case it was properly an issue for the trier of fact whether the franchisee's actions amounted to trademark infringement and a breach of contract warranting termination. 17 It is an established principle of contract law that an injured party may terminate a contract for breach only if the breach is material. Hensley v. E.R. Carpenter Co., 633 F.2d 1106, 1109-10 (5th Cir.1980). Whether a breach is material is an issue of fact, id., and the general inquiry is whether the injured party has received substantially what he bargained for. Ferrell v. Secretary of Defense, 662 F.2d 1179, 1181 (5th Cir.1981). Courts should also look to factors such as the extent to which the injured party can be compensated for the benefit of which he was deprived, the extent to which the party failing to perform will suffer forfeiture due to the contract's termination, and the extent to which the behavior of the party failing to perform comports with standards of good faith and fair dealing. Restatement (Second) of Contracts Sec. 241 (1981). In addition, courts should encourage the parties to keep the deal together by allowing the injured party to terminate the contract only after an appropriate length of time has passed. Farnsworth, Contracts Sec. 8.15 (1982). 18 Assuming that Inc. substituted commercial extracts for the natural prune and vanilla bean macerations required to make its rums, it is impossible to establish from the record any time frame for these events. Federico Abascal (Vice President of United and son of Ricardo Abascal) testified that Inc. began making its own macerations at the beginning of 1983, using the beans and the prunes (R13-1119), and that this continued until about one year before trial. Gerardo Abascal testified that when the formula bought from Limited ran out in 1983, Inc. began to make its own formula. 7 James Hammond, the general manager of the bottler, Jacquin-Florida Distilling Company, testified that Jacquin had equipment and facilities for macerating whole prunes and vanilla beans on its premises, but could not recall if the equipment had been used. (R9-307, 308). 19 The district court found that Inc.'s deviation from the letter of the secret formula was so minor as to render any finding of injury to Matusa negligible: 20 With regard to the use of the formula, the only evidence or the only conclusion that I can draw is that the formula used by Inc. and United was substantially similar to the formula, the original formula that the grandfather put in the book. Both parties have exchanged these formulas and I have heard nothing to indicate that they are not similar. 21 With regard to the substituting of extracts for the original vanilla and prune macerations, it's difficult to tell from this evidence if there is any change in the ultimate results. 22 (R7-160 Ex. 111-12). Thus, although the plaintiff presented evidence that Inc. used commercial extracts instead of macerations in the making of Matusalem rums, the district court found no trademark violation and no breach of contract: 23 [W]hether or not there was a violation of the trademark, I don't find on these facts such a violation.... [C]onsidering all the facts and circumstances, I don't find a wilful violation of the trademark, nor do I find any attempt at a false labeling, false designation or unfair competition. 24 (R7-160 Ex. 1-10-11). In light of the inconclusive nature of the plaintiff's evidence as to the extent and duration of Inc.'s alleged violation of its quality control obligations, and keeping in mind that questions of credibility and the weight to be given testimony is peculiarly a matter for the trier of fact, we will not second guess the trial court's ruling that the plaintiff failed to meet its burden of proof. 8