Marco's Franchising, LLC v. Soham, Inc.

365 F. Supp. 3d 891
CourtDistrict Court, N.D. Ohio
DecidedMarch 12, 2019
DocketCase No. 3:19 CV 301
StatusPublished
Cited by1 cases

This text of 365 F. Supp. 3d 891 (Marco's Franchising, LLC v. Soham, Inc.) is published on Counsel Stack Legal Research, covering District Court, N.D. Ohio primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Marco's Franchising, LLC v. Soham, Inc., 365 F. Supp. 3d 891 (N.D. Ohio 2019).

Opinion

JACK ZOUHARY, U.S. DISTRICT JUDGE

INTRODUCTION

Pending before this Court are cross-motions for preliminary injunction. Plaintiffs are the franchising and trademark arms of the Marco's Pizza organization (Marco's). Defendants are former Marco's franchisee companies and owners (Soham) who operated five Marco's Pizza restaurants in Florida. Marco's terminated Soham's Franchise Agreements and licenses to use its trademarks after Soham did not install designated computer systems that Marco's required in its restaurants. Soham continued operating after termination, and Marco's brought this lawsuit (Doc. 1). Soham counterclaimed, alleging breach of contract (Doc. 11).

Marco's moves for a preliminary injunction (Doc. 7), asking this Court to prevent Soham from continuing to operate under Marco's trademarks; Soham opposes (Doc. 31). Soham, too, moves for a preliminary injunction (Doc. 31), asking this Court to prevent Marco's from cutting Soham off from its suppliers; Marco's opposes (Doc. 34). This Court held a Record Hearing on March 1, 2019, to hear argument on the Motions.

BACKGROUND

Marco's is in the business of franchising pizza restaurants. Over the past forty years, Marco's has operated under federally registered trademarks and has allowed its franchisees to use these trademarks under franchise agreements (Doc. 7-1 at 8). Today, Marco's has over a dozen trademarks, including "Marco's Pizza," "Marco's," and other terms related to its menu items or advertising (id. at 9).

Soham first became a Marco's franchisee in 2010, when Soham executed its first *894Franchise Agreement with Marco's and opened a Marco's Pizza restaurant in Zephyrhills, Florida (Doc. 31 at 3). Over the next several years, Soham opened a total of five Marco's Pizza restaurants (Doc. 8 at 3). Soham and Marco's executed written Franchise Agreements for three of the restaurants. The other two operated without separate written agreements but with an "understanding" that those restaurants "would operate ... pursuant to the Marco's system" (Doc. 31 at 12).

Soham's five restaurants, like all Marco's Pizza restaurants in the United States, use a point-of-sale (POS) computer system to process orders. Until January 2018, Marco's allowed its franchisees to use POS systems from either of two approved vendors -- Pyrimont Operating Solutions or FoodTec Solutions (Doc. 7 at 4-5). But in January 2018, Marco's selected FoodTec as the exclusive POS system provider. Marco's announced to its franchisees that restaurants using the Pyrimont system had to convert to the FoodTec system by October 2018 (id. at 5). Soham did not change systems.

On October 1, 2018, Soham's five restaurants were among a handful of Marco's Pizza restaurants that had not yet converted to the FoodTec system. On October 4, 2018, Marco's sent Soham Notices of Deficiency, demanding that Soham install the FoodTec system by October 21, 2018 (Doc. 1-5). Soham still did not comply.

On October 25, 2018, Marco's sent Soham Notices of Default (Doc. 1-6). In these Notices, Marco's formally invoked defaults under the Franchise Agreements and demanded that Soham cure the defaults by November 30, 2018. The Notices warned that failure to change systems by November 30 would result in termination of the Franchise Agreements (id. ). Again, Soham refused. On January 9, 2019, Marco's sent Soham Notices of Termination (Doc. 1-7), terminating the Franchise Agreements and licenses to use the Marco's trademarks.

Despite termination, Soham continues to use the trademarks and to hold out its restaurants as authorized Marco's Pizza franchises. As of February 12, 2019, the date Marco's filed this lawsuit, there were only seven Marco's restaurants in the United States that had not converted to the FoodTec POS system -- two restaurants that are scheduled to permanently close soon and Soham's five restaurants (Doc. 7-1 at 7-8). Soham now claims the Franchise Agreements do not require it to replace its POS system. Both parties move for preliminary injunction (Docs. 7, 31).

DISCUSSION

To determine whether to grant or deny a preliminary injunction, this Court considers four factors:

(1) whether the movant has a strong likelihood of success on the merits; (2) whether the movant would suffer irreparable injury without the injunction; (3) whether issuance of the injunction would cause substantial harm to others; and (4) whether the public interest would be served by issuance of the injunction.

Ne. Ohio Coal. for Homeless v. Husted , 696 F.3d 580, 590-91 (6th Cir. 2012) (citation omitted). "In the trademark context, the first factor is often decisive." PGP, LLC v. TPII, LLC , 734 F. App'x 330, 332 (6th Cir. 2018). "If the movant is likely to succeed on an infringement claim, irreparable injury is ordinarily presumed, and the public interest will usually favor injunctive relief." Id. (citing Wynn Oil Co. v. Am. Way Serv. Corp. , 943 F.2d 595, 608 (6th Cir. 1991) ).

To succeed on the merits of its trademark-infringement claim, Marco's must prove three elements: (1) Marco's owns the registered trademark; (2) Soham used the mark in commerce; and (3) Soham's *895use was likely to cause confusion. Hensley Mfg. v. ProPride, Inc. , 579 F.3d 603, 609 (6th Cir. 2009).

Here, the dispute is limited to the third element, although Soham makes a passing swipe at the first (see Doc. 31 at 13). Soham alleges Marco's does not own its federally-registered trademarks because it abandoned them by allowing franchisees to operate without agreements in writing. But abandonment of a trademark does not turn on whether a franchisor consistently uses written agreements. Instead, it turns on whether the franchisor "sufficiently policed and inspected its licensees' operations to guarantee the quality of the products they sold under its trademarks to the public." Dawn Donut Co. v. Hart's Food Stores, Inc. , 267 F.2d 358, 367 (2d Cir. 1959). Soham bears the burden of proof to show this lack of policing, Barcamerica Int'l USA Tr. v. Tyfield Importers, Inc. ,

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365 F. Supp. 3d 891, Counsel Stack Legal Research, https://law.counselstack.com/opinion/marcos-franchising-llc-v-soham-inc-ohnd-2019.