By Bud
Culp
Franchisors are well-advised to vigorously protect
their brand name, one of a franchisor’s most valuable assets. However, before filing suit against a
franchisee for using a franchisor’s trademark, a franchisor needs to make sure its
own intellectual property house is in order, or, as Firehouse Subs recently
learned, the lawsuit may backfire.
In Firehouse
Restaurant Group, Inc. d/b/a Firehouse Subs v. Scurmont LLC, Case No.
4:09-CV-00618-RBH, Bus. Franchise Guide (CCH) 14,738 (D.S.C. Oct. 17, 2011), Firehouse
Subs sued two South Carolina franchisees for trademark infringement for
operating two non-franchise restaurants using names incorporating the Firehouse
mark. The franchisees fought fire with
fire: seeking a declaratory judgment
that they had not infringed the marks, and filing a counterclaim seeking to
cancel Firehouse’s trademark due to its alleged fraud on the U.S. Patent &
Trademark Office (USPTO) when Firehouse obtained its mark. At trial, the jury agreed with the
franchisees, finding that the defendants had not infringed Firehouse Subs’
trademarks, and that Firehouse Subs had defrauded
the USPTO.
Firehouse Subs tried to douse the flames, filing a motion
for a new trial, or, alternatively, for a new trial. However, the U.S. District Court for South
Carolina upheld the jury verdict. The
court found that the franchisees had presented adequate evidence that Firehouse
Subs knew of a restaurant in Florida operating under the name “Firehouse Grill
& Pub” at the time it filed its application for its trademark; however,
Firehouse had falsely represented to the USPTO that no other party had the
right to use the “Firehouse” mark.
Moreover, in light of evidence that Firehouse Subs unsuccessfully sought
to obtain a coexistence agreement with the owners of “Firehouse Grill &
Pub” (showing that Firehouse Subs was concerned about the possibility of
confusion with the Firehouse Subs trademark), the court also affirmed the
jury’s award of nearly $250,000 in attorneys’ fees to the franchisees because
the jury’s finding of fraud upon the USPTO rendered the case “exceptional”
under the Lanham Act.
Firehouse Subs has appealed the jury’s verdict.
