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LAFAYETTE, Indiana – A district judge ruled last month that a terminated Century 21 franchisee’s continued use of the franchisor’s trademark constituted not only trademark infringement but also counterfeiting. As a result, a court ruled that Century 21 was entitled to collect treble damages and attorney fees.
In highlighting last week’s decision, franchisor attorneys Wiley Rein, LLP cautions that most franchisors are aware of federal and state laws that can be invoked in protecting trademark infringement, but they may not be familiar with counterfeiting laws. The authors of the article state, “…not all franchisors are aware that in this context, it also may be possible to assert a claim for counterfeiting against the holdover franchisee, and that such a claim could offer significant potential recovery for the franchisor.”
In Century 21 Real Estate, LLC v Destiny Real Estate Properties et al., the franchisor terminated Daniel Sutton’s franchise agreement for failing to make required payments. When he continued operating his Destiny Real Estate business using the Century 21 signs, materials and various websites in identifying his operation as a Century 21 broker, the franchisor asked the court for a binding judgment in its favor to permanently stop the franchise owner from using its marks.
District Judge Jon E Deguilio stated that while trademark infringement is well-based under the law based on Destiny’s continued use of trademarks, his ruling goes further. He said because the franchisee was using Century 21’s exact logos, its infringement constitutes counterfeiting. And, since the counterfeiting was both known and willful, the judge ruled that the franchisor was entitled to triple the cost of the damages. However, he did decline to impose personal liability on Daniel Sutton as owner of the franchised company, finding that the complaint had not set forth sufficient facts to establish any personal involvement in the infringement.
After his thorough analysis of the damages, the judge ruled that Century 21’s motions for default judgment and permanent injunction would be granted. In its final judgment, the court ordered:
The judge ruled that Century 21 can seek additional damages based on additional evidence of damages or profits discovered in audits of Destiny’s books and records. He ordered ex-franchisee Destiny Real Estate and its employees and agents to stop using all Century 21 trademarks, materials, Internet website, and to discontinue identifying themselves as a Century 21 affiliate or broker. They were also ordered to assign their telephone numbers to Century 21.
The Wiley Rein firm advises franchisors to consider modifying franchise agreements to include an explicit acknowledgment by the franchisee that use of the franchisor’s marks after termination or expiration of the agreement constitutes unauthorized use of an identical mark. That acknowledgement could help to support a future claim against a franchisee, who knowingly uses “counterfeit” marks.
Robert L. Purvin, Jr., chair and CEO of the American Association of Franchisees & Dealers, a group that assists franchisee associations negotiate fairer franchise agreements, reminds that courts have historically been hard on franchisees who continue in business using a franchisor’s marks after a franchise has terminated—even when the termination was due to the breach of contract by the franchisor.
“Franchisees need to understand that they are doing business using a trade name that belongs to someone else, and even if they retain the right to stay in business when the franchise ends, they must change their name and identity. This case seems to be a most glaring example of what can happen if a franchisee fails to heed this warning,” he stated.
But the association leader emphasizes that this is a default judgment rendered at a trial court level. He said it was not opposed, because the defendants didn’t even appear.
“This case also represents a clear lesson as to why a franchisee should be represented by counsel when a dispute arises. This is what can occur if a franchisee rolls over and plays dead when a franchisor brings an action,” Purvin said.
|Century 21 v Destiny Court Decision.pdf||41.04 KB|