Opinion
Civil Action No. 3:01-CV-0306-D
May 17, 2001
MEMORANDUM OPINION
Plaintiff Ramada Franchise Systems, Inc. ("Ramada") applies for a preliminary injunction against defendants Jacobcart, Inc., Joy M. Cart ("Cart"), and Chacko Jacob ("Jacob") to prevent them from marketing, promoting, or renting their guest lodging facilities located in Denison, Texas in such a manner that the goods or services are falsely designated as those of Ramada. For the reasons that follow, the court grants the motion and enters a preliminary injunction by separate order filed today.
As permitted by Fed.R.Civ.P. 52(a), the court sets out its findings of fact and conclusions of law in this memorandum opinion.
I
Ramada licenses franchisees to operate hotels and motels under the Ramada trademark. It provides franchisees inter alia access to its centralized reservation system, advertising, and the right to use the Ramada name and logo. Cart and Jacob own defendant Jacobcart. Jacobcart entered into a license agreement on September 17, 1999 to operate a motel in Denison, Texas under the Ramada name. Jacobcart failed to comply with its contractual obligations as a franchisee, and Ramada gave it numerous directives to improve its facilities and to pay periodic fees. When it did not satisfy these problems, Ramada by written notice terminated the parties' license agreement on October 2, 2000 and directed Jacobcart to "completely deidentify the Unit from its appearance as a Ramada guest lodging facility. . . . Licensee must discontinue further use of the Ramada tradename and service marks on or about the Unit[.]" P. App. 98. Despite receipt of the termination notice, Jacobcart has continued to rent rooms under the Ramada name and to maintain Ramada signage. Id. at 8. Ramada now applies for a preliminary injunction to prevent defendants' continued use of Ramada's trade names and service marks in goods or services that defendants provide at their guest lodging facilities located in Denison, Texas.
Ramada filed its application for a preliminary injunction on February 14, 2001. On February 16, 2001 the court filed a scheduling order specifying that the application would be considered on the basis of affidavits, deposition excerpts, and/or exhibits, and directed the parties to file their materials. Ramada filed its brief and evidence appendix on March 19, 2001. The court on April 10, 2001 filed an agreed order extending until April 24, 2001 the deadline for defendants to file their opposition materials. Defendants have yet to respond to Ramada's application and it is now ripe for consideration.
II A
To obtain a preliminary injunction, Ramada must establish (1) a substantial likelihood that it will prevail on the merits; (2) a substantial threat that it will suffer irreparable injury if the injunction is not granted; (3) that the threatened injury to it outweighs the threatened harm the injunction may do to defendants; and (4) that granting the preliminary injunction will not disserve the public interest. See Jones v. Bush, 122 F. Supp.2d 713, 718 (N.D. Tex.) (Fitzwater, J.) (citing Ruscitto v. Merrill Lynch, Pierce, Fenner Smith, Inc., 777 F. Supp. 1349, 1353 (N.D. Tex.) (Fitzwater, J.)), aff'd, 948 F.2d 1286 (5th Cir. 1991) (per curiam) (table)), aff'd, 244 F.3d 134 (5th Cir. 2000) (per curiam) (table), cert. denied, ___ U.S. ___, 121 S.Ct. 749(2001). Plaintiff must satisfy all four requirements. Id. (citing Plains Cotton Coop. Ass'n v. Goodpasture Computer Serv., Inc., 807 F.2d 1256, 1261 (5th Cir. 1987); Enterprise Int'l, Inc. v. Corporacion Estatal Petrolera Ecuatoriana, 762F.2d 464, 472 (5th Cir. 1985)).B
The court need only consider whether one of Ramada's claims — its action for relief under 15 U.S.C. § 1115(a) — has a substantial likelihood of success. Ramada has registered its trademark name and logo on the principal register. [Pl. App. at 2] Registration confers certain rights on Ramada. 15 U.S.C. § 1115(a) provides:
Any registration . . . shall be admissible in evidence and shall be prima facie evidence of the validity of the registered mark and of the registration of the mark, of the registrant's ownership of the mark, and of the registrant's exclusive right to use the registered mark in commerce on or in connection with the goods or services specified in the registration subject to any conditions or limitations stated therein, but shall not preclude another person from proving any legal or equitable defense or defect, including those set forth in subsection (b) of this section, which might have been asserted if such mark had not been registered.
Ramada's trademark is protected because it is distinctive and arbitrary. "Fanciful and arbitrary marks are the strongest types of marks." Law finders Assocs., Inc. v. Legal Research Cir., 65 F. Supp.2d 414, 425 (N.D. Tex. 1998) (Fitzwater, J.) (citing Little Caesar Enters., Inc. v. Pizza Caesar, Inc., 834 F.2d 568, 571 (6th Cir. 1987)), aff'd, 193 F.3d 517 (5th Cir. 1999) (per curiam) (table); Minturn Adver., Inc. v. Hermsen Design Assocs., Inc., 728 F. Supp. 430, 432 (N.D. Tex. 1990) (Fitzwater, J.)). "[A]rbitrary and fanciful terms or phrases are those which are either coined words or words which are not suggestive of the product or service." Id. at 426 (quoting citing Union Nat'l Bank of Tex., Laredo, Tex. v. Union Nat'l Bank of Tex., Austin, Tex., 909 F.2d 839, 845 (5th Cir. 1990)).
"A `fanciful' mark is a combination of letters or other symbols signifying nothing other than the product or service to which the mark has been assigned . . ." Id. (quoting Worthington Foods, Inc. v. Kellogg Co., 732 F. Supp. 1417, 1433 (S.D. Ohio 1990)). "The greatest protection extends to marks that are purely arbitrary or fanciful and bear no relation to the products or services sold under the mark." Id. (quoting Minturn Adver., 728 F. Supp. at 432). The Ramada name is distinctive because it is an arbitrary mark that does not indicate anything about the products and services denoted by the trademark. It is entitled to the highest degree of protection.
Ramada has also shown that defendants' actions constitute trademark infringement, in violation of 15 U.S.C. § 1114(1)(a), which prohibits the "use in commerce [of] 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." Defendants no longer have the right to use the Ramada trademark. "Jacobcart is an ex-licensee, and the law is clear that termination of a trademark license precludes further use by the licensee." P. Br. at 9. See, e.g., Pappan Enters., Inc. v. Hardee's Food Sys., Inc., 143 F.3d 800, 805 (3d Cir. 1998); Southland Corp. v. Froelich, 41 F. Supp.2d 227, 247-248 (E.D.N.Y. 1999). Defendants' continued use of the Ramada name creates a likelihood of confusion between Ramada's line of facilities and defendants' facility. See Burger King Corp. v. Mason, 710 F.2d 1480, 1492 (11th Cir. 1983) ("Common sense compels the conclusion that a strong risk of consumer confusion arises when a terminated franchisee continues to use the former franchisor's trademarks"). Such a situation constitutes trademark infringement for which no defense has been offered by defendants, either as to their continuing right to use the Ramada trademark or concerning the likelihood of confusion that their continued use of the Ramada trademark and service marks engenders. See U.S. Structures, Inc. v. J.P. Structures, Inc., 130 F.3d 1185, 1189-91 (6th Cir. 1997) (holding that continued use of an identical trademark by franchisee following termination of franchise agreement constituted ipso facto evidence of likelihood of confusion for purpose of establishing trademark infringement). Accordingly, Ramada has shown a likelihood of success on the merits of its claim for trademark infringement.
C
Ramada has also established a substantial threat that it will suffer irreparable injury if the injunction is not granted. In a trademark infringement case, "a substantial likelihood of confusion constitutes irreparable injury." KFC Corp. v. Goldey, 714 F. Supp. 264, 267 (W.D. Ky. 1989); see Joy Mfg. Co. v. CGM Valve Gauge Co., Inc., 730 F. Supp. 1387, 1394 (S.D. Tex. 1989) ("When a likelihood of confusion exists, the plaintiff's lack of control over the quality of the defendant's goods constitutes immediate and irreparable harm, regardless of the actual quality of the defendant's goods.") The likelihood of confusion is obvious when a defendant holds itself out as a franchisee. KFC, 714 F. Supp. at 267. If defendants are not prohibited from holding their motel out as a Ramada franchise, it is very likely that customers will be confused into believing they are patronizing a Ramada facility.
The necessity of preventing such confusion is particularly pressing in the context of a motel chain because guests may only stay at a particular franchise once. A bad experience at one location of what is supposed to be a relatively uniform chain may influence the customer to view the entire franchise poorly. A motel that is no longer a franchisee has little incentive to promote the value of the franchise as a whole, but its unregulated conduct under the franchise's trademark and service mark can significantly impact the customer good will associated with those marks. Thus defendants' continued use of the Ramada trademark and service marks, coupled with their inability and lack of incentive to meet applicable quality control standards, constitutes a substantial threat of irreparable injury.
D
The threatened harm to Ramada outweighs the threatened harm to defendants. Although defendants will suffer some amount of harm if a preliminary injunction is issued, courts usually hold that when defendants improperly use a plaintiffs trademark, the threatened harm to the plaintiff outweighs the threatened harm to the defendants. See, e.g., KFC, 714 F. Supp. at 267. Ramada will suffer substantial harm because it cannot control its own reputation and good will. See Joy Mfg., 730 F. Supp. at 1394. Accordingly, the court holds that Ramada has demonstrated that the threatened harm to it outweighs the threatened harm to defendants.
E
The entry of a preliminary injunction will not disserve the public interest, which promotes the protection of valuable trademarks and service marks in a capital-based economy that rewards success through competition.
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The court has filed a preliminary injunction by separate order today.