Thursday, September 13, 2012

Hotel Franchisee’s Post-Termination Use of Marks Was Infringement

This posting was written by Peter Reap. Editor of CCH Business Franchise Guide.
Jagaji, Inc., a terminated hotel franchisee, committed trademark infringement in violation of the Lanham Act by continuing to display franchisor Choice Hotels International, Inc.’s trademarks without authorization following the franchisor’s termination of the parties’ relationship, the federal district court in Columbus, Ohio, has determined.

Because the same analysis applied when determining liability on federal trademark infringement, federal unfair competition, and Ohio law claims for common law infringement, unfair competition, and deceptive trade practices, Choice was also entitled to summary judgment on its remaining claims which were all based upon the unauthorized use and display of its trademarks.


On or about July 31, 2000, Choice entered into a franchise agreement with Jagaji which permitted Jagaji to open and operate an ECONO LODGE hotel franchise in Marietta, Ohio. On or about November 17, 2008, after previously sending notices of default, Choice sent Jagaji a Notice of Termination, stating Choice’s termination of the franchise relationship and the parties’ agreement, effective immediately. The Notice of Termination referred to Jagaji’s previous failure to respond to customer complaints as the basis for termination of the franchise relationship; however, it also sought payment of remaining outstanding debts from Jagaji and lost profits under the agreement, for a combined total demand of $50,040.42.

The Notice of Termination instructed Jagaji immediately to cease use of any and all marks owned by Choice and informed Jagaji that its continued use of the ECONO LODGE family of marks would constitute trademark infringement. Sometime in November 2008, Choice removed Jagaji from its Econo Lodge reservation system.

After receiving the Notice of Termination, Jagaji continued to use the ECONO LODGE family of marks in, around, and in publicity for, Jagaji’s hotel. The franchisee’s principal, Bhogi Patel “believed [Jagaji] could be reinstated once all questions were answered.”

In 2009, Jagaji received three successive form letters from Choice regarding certification procedures of its hotel general manager. Bhogi Patel claimed that these letters gave him the understanding that Choice still considered Jagaji to be a franchisee, that the relationship had not been terminated, and that there was a possibility of Jagaji being reinstated into the franchisor’s reservation system.

On November 17, 2009, Choice sent another letter to Jagaji by certified mail regarding Jagaji’s continued unauthorized use of the ECONO LODGE family of marks. In this letter, Choice stated that it considered Jagaji’s continued unauthorized use of the ECONO LODGE family of marks to be trademark infringement, and once again demanded that Jagaji immediately cease its use of the ECONO LODGE family of marks.

Jagaji asserted that, as of November 30, 2009, it had discontinued its use of the ECONO LODGE marks and changed the name of its hotel to the “Marietta Inn.” Jagaji admitted, however, that even after that date it continued to display ECONO LODGE signage on the hotel.

Choice filed its complaint against Jagaji on October 26, 2010, seeking both injunctive and monetary relief.

Federal Trademark Infringement

After review of the parties’ pleadings and exhibits, there was no genuine issue of material fact over Jagaji’s liability for trademark infringement, the court held. Jagaji admitted that it continued to display the ECONO LODGE marks on the hotel’s property after Choice unequivocally denied Jagaji the authority to do so. As a matter of law, therefore, Choice established Jagaji’s liability for trademark infringement under the Lanham Act, according to the court.

Jagaji admitted receiving the franchisor’s notices of default in 2008, as well as the Notice of Termination in November 2008, the court noted. Jagaji was then removed from Choice’s Econo Lodge reservation system. Jagaji argued that because it received three form letters from Choice regarding management certification in 2009, it still reasonably believed Choice considered Jagaji to be a franchisee, and that the relationship had not been terminated. At oral argument, however, counsel for Jagaji acknowledged that Choice never rescinded the Notice of Termination.

Any remaining belief Jagaji held that it was still a franchisee authorized to use Choice’s trademarks was dispelled upon Jagaji’s receipt of Choice’s November 17, 2009, letter expressly forbidding Jagaji from any further use of the ECONO LODGE Marks. Choice Hotels’ position in that letter was crystal clear: Jagaji was no longer a franchisee of Choice, and was no longer authorized to use Choice Hotels’ registered trademarks, the court observed. Jagaji was ordered to cease its use of Choice Hotels’ marks within a reasonable time frame, but it admittedly failed to do so.

Jagaji contended that the parties could have legitimate disagreements about the alleged breaches of the franchise agreement by Jagaji, and/or the intent or effect of the notices of default and termination sent by Choice. However, those allegedly disputed issues, did not serve to create a genuine dispute of the material facts establishing Jagaji’s unauthorized use of the ECONO LODGE Marks after receiving the letter of November 17, 2009, the court decided.

Likelihood of Confusion

The Sixth Circuit held, in a similar context involving a restaurant chain franchise agreement, that “proof of continued, unauthorized use of an original trademark by one whose license to use the trademark had been terminated is sufficient to establish ‘likelihood of confusion.’” U.S. Structures, Inc. v. J.P. Structures, Inc., 130 F.3d 1185 (6th Cir. 1997).

There was no dispute that Jagaji continued to use the ECONO LODGE Marks after its license was terminated, and so there could be no genuine issue of fact as to whether Jagaji’s unauthorized use was likely to cause confusion in the marketplace, the court reasoned.

Jagaji also claimed that material issues of fact existed as to whether it took reasonable action to discontinue use of the ECONO LODGE trademark once Choice made its position clear. While the court appreciated Mr. Patel’s testimony that, once he received the November 17, 2009 letter from Choice, Jagaji took some measures to stop using Choice’s marks and to mitigate any confusion of its hotel with one of Choice’s franchisees, those factual issues would bear on the measure of Choice’s damages from the infringement, not liability.

Because likelihood of confusion was established, and the November 17, 2009, letter left no genuine dispute as to whether Jagaji’s use of the trademark was without the registered owner’s consent, Choice met its burden to establish a Lanham Act violation, the court ruled. Having determined liability, the next step would be to determine the appropriate injunctive relief to prevent any further infringement and monetary relief to compensate Choice for any applicable damages. Thus, a request by Choice for a hearing on those issues was granted.

The September 10 decision is Choice Hotels International, Inc. v. Jagaji, Inc.  It was published in the September 11 issue of Wolters Kluwer IP Law Daily.

Further information regarding IP Law Daily is available here.

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