Post-Termination Trademark And Trade Secret Infringement

Termination of a franchise or dealership relationship will almost
always end licenses to use trade secrets, confidential information,
trademarks, and other intellectual property. The protection and recovery
of this intellectual property is critical to the franchisor or supplier.
Conversely, the former franchisee or dealer may want to continue
operating its business with as little disruption as possible and may
attempt to continue to use the franchisor’s or dealer’s intellectual
property. This chapter addresses statutory and common law trademark
protection and the remedies available for unauthorized trademark use.
This chapter also addresses the statutory and common law protection of
trade secrets and confidential information and remedies available for
their unauthorized use.
A. Trademark Infringement
When a former franchisee or dealer continues to use the franchisor’s
or supplier’s trademark, trade name, or service mark after the termination
of the relationship, the franchisor or supplier may contend that this
results in public confusion and damage to its reputation.1 If a former
franchisee or dealer, after termination of the relationship, attempts to
remain in business (sometimes even in the same location) using the same
telephone number, the same trade dress (i.e., the colors and layout of the
store) and trademarked signage, and offering virtually the identical goods
or services it offered while it was a franchisee or authorized dealer, the
franchisor or supplier is likely to seek to enjoin the use of its trademarks,
1. See Hypertherm v. Precision Prods., 832 F.2d 697, 700 (1st Cir. 1987);
Howard S. Wolfson, One Royalty Strike and You’re Out!: Franchisor’s
Independent Right to Terminate a Franchise Agreement for Nonpayment
of Royalties and the Remedies Available Under the Lanham Act, 17
FRANCHISE L.J. 1, 19 (1997).
Franchise and Dealership Termination Handbook
trade name, trade dress, and service marks by the terminated franchisee
or dealer.2
Different causes of action exist depending on whether the trademark
to be enforced is registered (with either the federal or state government)
and whether the trademark holder chooses to base its claim on statutory
or common law. The most common cause of action is based upon the
federal Lanham Trademark Act, which allows a trademark holder to
claim trademark infringement, dilution, false designation of origin, and
unfair competition. Under common law, a trademark holder has a
variety of potential claims in the franchise or dealership context,
including (but not limited to) breach of contract, unfair competition, and
common law trade name and trademark infringement.
1. The Lanham Trademark Act
The Lanham Trademark Act of 1946 (the “Lanham Act”) provides
the federal statutory foundation for substantive claims against use of a
licensor’s registered and unregistered marks.3 Section 43(a) of the
Lanham Act gives a common law owner of an unregistered mark the
option to sue in federal or state court for claims of infringement.
The intent of the Lanham Act is to protect persons engaged in
commerce against unfair competition by making actionable the deceptive
and misleading use of marks in commerce and “to prevent fraud and
deception in such commerce by the use of reproductions, copies,
counterfeits, or colorable imitations of registered marks.”4 The Lanham
Act defines a trademark as “any word, name, symbol, or device, or any
combination thereof” that is used in commerce “to identify and
distinguish his or her goods.”5 The act defines a trade name as “any
name used by a person to identify his or her business or vocation.”6
When there is a continued, unauthorized use of marks by a former
franchisee or licensee, three statutory causes of action are available to the
2. See Wolfson, supra note 1, at 19; Sunward Elecs. v. McDonald, 362 F.3d
17 (2d Cir. 2004).
3. Lanham Act, 15 U.S.C. §§ 1051.
4. Id. § 1127; see also Ocean Garden v. Marktrade Co., 953 F.2d 500, 503
(9th Cir. 1991); Paisa, Inc. v. N&G Auto, 928 F. Supp. 1009, 1012 (C.D.
Cal. 1996).
5. 15 U.S.C. § 1127.
6. Id.

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