MEMORANDUM
Presently before the Court is Plaintiffs Motion For Preliminary Injunction (Doc.6) and Defendant’s Response in Opposition thereto (Doc. 24). For the reasons set forth below and upon consideration of the parties’ submissions and oral argument held before this Court on December 7-10, 2010, this Court will grant Plaintiffs Motion For Preliminary Injunction.
I. FACTUAL BACKGROUND
The instant action arises out of allegations of breach of contract, trademark infringement, false designation of origin, and dilution of trademark brought by Plaintiff MarbleLife, Inc. (“MarbleLife”) against Defendant Stone Resources, Inc. (“Stone Resources”). Plaintiff requests that this Court enter an order enjoining Defendant from violating its contractual, statutory, and/or common law obligations pending resolution of a separate arbitration proceeding in Dallas, Texas. Plaintiff also requests reasonable attorneys fees, expenses and costs and other and further relief as the Court may deem just and equitable.
Plaintiff MarbleLife, a Texas corporation with its principal place of business in Sanford, Florida, is engaged in the business of restoring and repairing granite and other types of inorganic and organic surfaces. (Compl. ¶ 1.) Defendant Stone Resources is a Pennsylvania corporation with its principal place of business in Media, Pennsylvania. (Compl. ¶ 2.) For nearly twenty (20) years, MarbleLife has devel
On or around April 3, 2000, Plaintiff (as franchiser) and Defendant (as franchisee) entered into a Franchise Agreement (“the Agreement”). (Compl. ¶ 10.) Under the Agreement, Plaintiff granted Defendant the right and license to operate a franchise in a specified territory (“the Territory”). (Compl. ¶ 11.) In addition, Defendant was granted the right and license to use MarbleLife’s registered trademark. 1 (Compl. ¶ 12.) Pursuant to the Agreement, Defendant adopted the trade name, “MarbleLife of Delaware Valley.” (Compl. ¶ 13.) The Agreement also granted Defendant the right and license to use MarbleLife’s unique business system (including a system manual, employee training, and an advertising platform). (Compl. ¶ 14.) The Agreement had an initial term of ten (10) years (which was not extended), and imposed certain requirements upon Defendant following its expiration, including the following: (1) an agreement not to compete during the term of the Agreement and for a period of two years following expiration; (2) a requirement to cease using the trademark and/or any System Rights; and (3) a limitation on the use of Plaintiffs “confidential information” only for “the purposes of fulfilling Franchisee’s obligations under this Agreement.” (Compl. ¶¶ 16-20.)
In the event of termination, the Agreement also included additional consequences of expiration, including the following: (1) the immediate termination of all rights granted to Defendant; (2) the transfer of business, customers, facilities, services, employees, and telephone numbers to Plaintiff; and (3) the return or disposal of certain specified information (i.e., all advertising and promotional materials containing the MarbleLife trademark; all information relating to MarbleLife; all manuals and supplements; and all sales or marketing data relating to MarbleLife). (Compl. ¶ 21.)
In addition, Defendant agreed to indemnify Plaintiff against all costs, expenses, liabilities, and losses related to any violation of the Agreement. (Compl. ¶ 22.) Defendant further agreed that any violation of the noncompete provision and the confidentiality provisions would cause MarbleLife to “suffer irreparable harm” and that MarbleLife could seek “damages or injunctive relief against Franchisee in a court of competent jurisdiction” to address said harm (Compl. ¶ 23.) The Agreement further provides that if MarbleLife prevails in any such litigation, “Franchisee shall reimburse MarbleLife for all costs, attorneys’ fees and other expenses incurred by MarbleLife in connection therewith.” (Compl. ¶¶ 23-24.) Further, in the event that injunctive relief is unavailable, the Agreement permits Plaintiff to seek “as liquidated damages a sum of money equal to the largest weekly fee paid by Franchisee to MarbleLife during the term of this Agreement times 104.” (Compl. ¶ 25.) The parties also agreed that any dispute arising under the Agreement would be subject to arbitration, except for “any temporary, interim or provisional eq
The Agreement was set to expire on or around April 3, 2010, absent Defendant’s exercise of a right of renewal. (Compl. ¶ 30.) Defendant failed to renew its franchise despite several attempts by Plaintiff to encourage Defendant to do so. (Compl. ¶¶ 31-39.) Accordingly, the Agreement expired, and as a result, Plaintiff ceased receiving royalty payments. (Compl. ¶¶ 40 — 42.)
According to Plaintiff, Defendant has violated its post-termination obligations and has, instead, become a direct competitor of MarbleLife. (Compl. ¶¶ 43-44.) In fact, Plaintiff alleges that Defendant allowed the Agreement to expire for the express purpose of competing with Plaintiff. (Compl. ¶ 46.) In response to Defendants actions, on April 14, 2010, Plaintiff sent Defendant a notice confirming the expiration of the Agreement and reminding Defendant of its post termination obligations. Said notice also instructed Defendant to cease all use of the MarbleLife trademark and/or System by no later than April 19, 2010. (Compl. ¶ 47.) In contravention of Section 2.5 of the Agreement, Defendant ignored Plaintiffs notice and continued to use both Plaintiffs mark and System. (Compl. ¶ 48.) Specifically, Defendant continued to conduct business under the name, “MarbleLife of Delaware Valley,” and as late as May 13, 2010, continued to offer products containing Plaintiffs mark. (Compl. ¶ 50.) Also, Defendant has continued operating in the Territory, offering the same services as Plaintiff in direct competition with Plaintiff. (Compl. ¶ 53.) In addition, Defendant continues to benefit from Plaintiffs exclusive advertising arrangement. (Compl. ¶ 55.)
On April 30, 2010, Defendant admitted to its continued use of the MarbleLife mark and said it would “commence the deidentification process immediately,” however, Defendant has failed to confirm that it has stopped using the mark. (Compl. ¶ 74.) Since April 30, 2010, an advertisement for Stone Resources has appeared in an online version of Distinctive Living, featuring the MarbleLife name and mark, as well as a phone number that Defendant used while a MarbleLife franchisee. (Compl. ¶ 74.) Irrespective of Defendant’s use of the mark, Plaintiff believes that Defendant is continuing its business in direct competition with MarbleLife in the Territory, using the MarbleLife business system and other proprietary information. (Compl. ¶ 76.)
Accordingly, Plaintiff seeks immediate, emergency relief to enjoin Defendant from its continuing violations. Plaintiff contends that emergency injunctive relief is critical for the following reasons: (1) such relief is currently unavailable in the pending arbitration proceeding; (2) such relief is necessary to protect Plaintiffs interests in the Territory from unfair competition by its former franchisee; (3) Plaintiffs efforts to secure a replacement franchisee for the Territory have been hindered by Defendant’s delay in committing to whether it would renew the franchise and Defendant’s unauthorized use of the mark in the Territory; (4) Defendant’s unauthorized use of the mark has caused confusion among retailers; and (5) Plaintiffs efforts in establishing a new franchisee in the Territory likely will be futile if customers know that a former MarbleLife franchisee is still operating within the Territory.
Based on the foregoing allegations, Plaintiff asserts the following six counts: breach of the Franchise Agreement (Count I) ; federal trademark infringement (Count II) ; federal false designation of origin (Count III); federal dilution of trademark (Count IV); Texas and/or Pennsylvania
II. PROCEDURAL BACKGROUND
On April 9, 2010 Defendant initiated an arbitration proceeding in Dallas, Texas. Ironically, Defendant made its demand for arbitration identifying itself as “MarbleLife of Delaware Valley.” (Compl. ¶ 79.) Plaintiff filed the instant action on May 21, 2010. That same day Plaintiff filed a Motion for Preliminary Injunction. The Court held a hearing on the application for preliminary injunction on December 7, 2010. Said hearing concluded on December 10, 2010.
III. LEGAL STANDARD
“[T]he grant of injunctive relief is an ‘extraordinary remedy which should be granted only in limited circumstances.’ ”
AT & T v. Winback & Conserve Program, Inc.,
In order to prove irreparable harm, the moving party “must ‘demonstrate potential harm which cannot be redressed by a legal or an equitable remedy following a trial.’ ”
Acierno,
IV. DISCUSSION
Courts will issue a preliminary injunction only where the following four factors weigh in favor of this extraordinary measure: (1) the likelihood that the applicant
A. Likelihood of Success on the Merits
The first factor of the preliminary injunction analysis is the likelihood of success on the merits. Here, Plaintiff present three claims: (1) breach of contract; (2) trademark violation; and (3) trademark dilution. As set forth below, it is clear that Plaintiff has satisfied its burden of demonstrating a likelihood of success on the merits with regard to all three claims.
i. Violation of Non-compete Provision
Plaintiff argues that MarbleLife is likely to succeed on the merits of its first claim because Defendant has breached its contractual, statutory, and common law duties by competing with Plaintiff and using Plaintiffs registered trademark after expiration of the Franchise Agreement. Pursuant to Section 9.9 of the Agreement, Texas Law governs the construction of the Agreement.
Accordingly, the covenant not to compete at issue is subject to the requirements set out in Tex. Bus. & Com. Code § 15.50(a). Section 15.50(a) provides that
[A] covenant not to compete is enforceable if it is ancillary to or part of an otherwise enforceable agreement at the time the agreement is made to the extent that it contains limitations as to time, geographical area, and scope of activity to be restrained that are reasonable and do not impose a greater restraint than is necessary to protect the goodwill or other business interest of the promisee.
Tex. Bus. & Com. Code § 15.50
“An agreement is ancillary to an otherwise enforceable agreement if ‘it is part of and subsidiary to an otherwise valid transaction or relationship which gives rise to an interest worthy of protection
Meineke Discount Muffler v. Jaynes,
Defendant argues that the Agreement is not an enforceable agreement under Tex. Bus.
&
Com.Code § 15.50 because Plaintiff fraudulently misrepresented its ownership of certain patents. Specifically, Defendant argues that Plaintiff averred that it owned the patent to Interlock, a surface coating
Section 2.4(d)(iii) of the Agreement provides:
MarbleLife shall use the advertising fee paid by Franchisee (as described in Section 3.2(b) below) to produce advertising materials and supporting material for products and services offered by the MarbleLife franchisees under the System. MarbleLife may also use this fee to carry out sales, marketing and advertising initiatives for the benefit of all franchisees and company and affiliate operations under the Mark in the U.S. or in a region of the U.S.; provided, however, that MarbleLife will not be obligated to carry out any such initiatives except to the extent that funds are available from advertising fees paid by franchisees in excess of the cost of advertising materials and supporting materials.
According to Defendant, Plaintiff improperly allocated the advertising funds to cover operating expenses, salary costs and management fees. During the hearing, Plaintiff produced testimony substantiating that Alan Mayr, MarbleLife’s Chief Operating Officer performed advertising functions as part of his job responsibilities and accordingly a portion of his salary was paid out of the Advertising Fund. On cross-examination John Frietag, witness for Defendant, conceded that despite Defendant’s objections to certain allocations he could not dispute one allocation made by Mr. Mayr. In rebutting Defendant’s argument regarding the enforceability of the Agreement, Plaintiff highlighted that the Agreement provided that in the event Defendant believes there to be a material breach of the contract, Defendant was required to memorialize its objections in writing and provide Plaintiff with an opportunity to cure said breach. Defendant never voiced any objection to the use of the advertising fund prior to the instant action. Moreover, Defendant operated under the Agreement for ten (10) years and there was not a single instance where Stone Resources was unable to purchase Interlock or apply it in any manner it chose.
Accordingly, this Court rejects Defendants argument that the Agreement is not enforceable under Texas law. Defendant has not substantiated that Joe Smith, Chief Executive Officer of Stone Resources, was induced into entering into the Agreement because of alleged misrepresentations made by Plaintiff concerning ownership of the Interlock patent. Furthermore, Defendant has failed to establish that the patents actually reverted back to Mr. Maier. Moreover, Defendant has effectively conceded to the enforceability of the Agreement by instituting an arbitration demand against Plaintiff for breach of contract as said demand requires an enforceable contract as an element.
This Court next evaluates whether or not the restrictions imposed by the covenant are reasonable. Whether a covenant not to compete is reasonable is a question of law for the court.
Henshaw v. Kroenecke,
The covenant at issue bars Defendant from competing in ten (10) specified counties and in any other county in which MarbleLife has a franchise or a company office. (Pl.’s Br. In Supp. Of Mot. Prelim. Inj. 5) Plaintiff maintains that the geographic scope of the covenant is reasonable since Plaintiff operates franchises throughout the United States. Defendant argues that the geographic scope of the covenant is unduly broad, however, given the character of Plaintiff’s business this Court disagrees. This Court finds that on the basis of the record developed, that Plaintiff is entitled to a preliminary injunction prohibiting Defendant from competing with Plaintiff in the above-mentioned areas. Texas Courts have previously upheld similar restraints where the nature of the movant’s business so required.
See Vais Arms, Inc. v. Vais,
ii. Lanham Act Claims
Secondly, Plaintiff argues that it is likely to succeed on the merits of its Lanham Act, 15 U.S.C. § 1114 claim. Section 32 of the Lanham Act provides a cause of action for
infringement when, without the registrant’s consent, one uses in commerce, any reproduction, counterfeit, copy[,] or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion or to cause mistake or to deceive .... ”
15 U.S.C. § 1114(l)(a).
“To recover on a claim of trademark infringement, a plaintiff must first show [ (1) ] that the mark is legally protectable and must then establish infringement by [(2)] showing a likelihood of confusion.”
Am. Rice, Inc. v. Producers Rice Mill, Inc.,
The likelihood of confusion is further evidenced by the fact that Defendant continues to hold itself out as a MarbleLife franchisee, not only using the MarbleLife name but also retaining the company’s phone numbers, email addresses, and advertising arrangements thus adding to the likelihood for confusion.
See First Keystone Fed. Sav. Bank v. First Keystone Mortgage, Inc.,
iii. Dilution Act Claims
Third, Plaintiff avers that it is likely to prevail on its Federal Trademark Dilution Act, 15 U.S.C. 1125(c) (“FTDA”) claims against Defendant. “Trademark dilution is the weakening of the ability of a mark to clearly and unmistakably distinguish the source of a product.”
Scott Fetzer Co. v. House of Vacuums, Inc.,
(i) The degree of similarity between the mark or trade name and the famous mark.
(ii) The degree of inherent or acquired distinctiveness of the famous mark.
(iii) The extent to which the owner of the famous mark is engaging in substantially exclusive use of the mark.
(iv) The degree of recognition of the famous mark.
(v) Whether the user of the mark or trade name intended to create an association with the famous mark.
(vi) Any actual association between the mark or trade name and the famous mark.
15 U.S.C. § 1125.
This Court finds that Plaintiffs mark is famous and distinctive within the meaning of the FTDA as it has been used for nearly twenty (20) years. In addition, the mark has been used throughout the United States and has been used extensively in Plaintiffs unique advertising arrangements. Defendant’s continued use of the name “MarbleLife of Delaware Valley,” coupled with Defendant’s use of Plaintiffs unique advertising arrangements and phone numbers in the very territory in which it operated as a MarbleLife franchise clearly serves to weaken the recognition of Plaintiffs mark. Accordingly, this Court finds that Plaintiff has demonstrated a likelihood of success on the merits with respect to establishing all elements of a violation of the FTDA and, consequently, this factor of the preliminary injunction analysis favors granting the requested relief.
B. Irreparable Harm
The second factor in the preliminary injunction analysis is that of irreparable harm, which requires an imminent injury such that legal or equitable relief at the end of trial will not remedy the harm.
Acierno,
Plaintiff strenuously argued, and presented several witnesses who testified, that MarbleLife will suffer irreparable harm in the absence of a preliminary injunction enjoining Defendant from continuing to violate its post-termination contractual obligations. Plaintiff highlighted that Defendant continues to utilize phone numbers that it used when Stone Resources was a MarbleLife franchise and which Defendant was obligated to transfer upon the expiration of the franchise agreement. (PL’s Br. In Supp. Of Mot. Prelim. Inj. 16) District courts within this circuit have reasoned that where a former franchisee continues to use telephone numbers it used as franchisee and agreed to relinquish or transfer upon termination, the franchisee is not only in breach of the franchise contract but also poses a serious threat of irreparable injury.
See Cottman Transmission Sys., Inc. v. Melody,
Additionally, this Court agrees that Plaintiff has and will continue to be irreparably harmed by Defendant’s usurpation of MarbleLife’s good will. It is undisputable that Defendant’s current actions of operating a stone care and restoration business nearly identical to the one it operated for ten (10) years as a MarbleLife franchise, servicing the same territory, using the customer list from the franchise, and using nearly identical advertisements, reaps the good will that MarbleLife has established. In addition to the above-mentioned, Plaintiff maintains that it has additional interests which require protection. Among these interests are MarbleLife’s advertising and marketing strategies and MarbleLife’s unique business systems, which were taught to Defendant during its time as franchisee. (Pl.’s Br. In Supp. Of Mot. Prelim. Inj. 22).
Given the likelihood of confusion by consumers caused by Stone Resources Inc., MarbleLife has suffered and continues to suffer irreparable harm. It is irrelevant that there is no evidence that Defendant’s business is inferior to that of Plaintiff because, MarbleLife has suffered a loss of control over the reputation of its product, and, consequently, there is a potential that its reputation will be damaged. We find, therefore, that this factors weighs in favor of granting the requested relief.
C. Balance of Harms
In deciding whether injunctive relief is appropriate, we must balance the hardships to the respective parties.
Opticians,
D. Public Interest
The final prong in the preliminary injunction analysis is a consideration of the public interest.
Id.
The Third Circuit has held that “[i]n a trademark case, the public interest is ‘most often a synonym for the right of the public not to be deceived or confused.’ ”
S & R Corp.,
V. CONCLUSION
Having considered each of the four factors and finding that each weighs in favor of granting the requested injunctive relief, we find that injunctive relief is warranted in this case. Accordingly, this Court grants Plaintiffs Motion for a Preliminary Injunction.
Notes
. Plaintiffs trademark, MarbleLife®, is registered with the United States Patent and Trademark Office, U.S. Reg. No. 1589342