Post-Termination Use of Franchisor’s Trademark Was Counterfeiting

This posting was written by Cheryl Beise, Editor of CCH Trademark Law Guide.

A terminated Indiana real estate brokerage franchisee that continued to use the marks of franchisor Century 21 was liable in a default judgment for trademark infringement, dilution, and counterfeiting under the Lanham Act, the federal district court in Lafayette, Indiana has ruled.

The brokerage firm, terminated for nonpayment of fees in March 2011, also was liable for false advertising and false designation of origin under Lanham Act, common law unfair competition, and breach of the Century 21 franchise agreement.

While the brokerage firm’s trademark infringement and dilution liability was readily established, the court observed that there was a split in authority regarding whether a terminated franchisee’s continued unauthorized use of the franchisor’s mark could constitute trademark counterfeiting.

In the absence of a ruling on the issue from the Seventh Circuit, the court concluded that under a plain reading of the Lanham Act, hold-over franchisees were not excluded from counterfeiting liability.

“Identical” or “Substantially Similar” Mark

It was well settled that an entity that is unrelated to a mark owner engages in counterfeiting if it creates a mark that is “identical” to the owner’s registered mark and provides unauthorized goods or services. There was “no reason why an ex-franchisee should escape liability for counterfeiting simply because that person had access to a franchisor’s original marks under the former relationship and therefore did not need to reproduce an identical or substantially similar mark,” the court reasoned. In fact, the risk of confusion was greater in such cases, in the court’s opinion.

The brokerage firm’s continued unlicensed use of Century 21's trademarks in reference to services that had no connection with, nor approval from, Century 21, constituted the use of counterfeit marks, the court concluded.

Damages

Section 35 of the Lanham Act provides for recovery of treble damages and reasonable attorneys fees in cases of intentional counterfeiting. Because the franchise agreement’s liquidated damages provision already provided for lost royalty and advertising fees, the court doubled rather than tripled Century 21’s actual damages.

The brokerage firm also was enjoined from future infringement and ordered to:

(1) Remove all signs identifying itself as a Century 21 affiliate or broker;

(2) Cease using Century 21's marks on any website or in any domain name;

(3) Request third party websites, including Multiple Listing Services, to remove references associating the brokerage with Century 21; and

(4) Assign its telephone numbers to Century 21.

The decision is Century 21 Real Estate, LLC v. Destiny Real Estate Properties, CCH Trademark Law Guide ¶61,927. It will appear in CCH Business Franchise Guide.