Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—2d Cir.: Benihana licensee enjoined from selling unauthorized food items, using trademarks, (Apr 28, 2015)

By Jody Coultas, J.D.

The U.S. Court of Appeals in New York City upheld an injunction, barring Benihana of Tokyo from selling unauthorized food items and using certain trademarks in connection with its Honolulu restaurant. However, the appeals court overturned a ruling restricting the arguments that the licensee could make in the arbitration of the parties’ disputes (Benihana, Inc. v. Benihana of Tokyo, LLC, April 28, 2015, Lynch, G.).

After the division of the well-known Benihana restaurant chain in 1994, Benihana America received the right to operate Benihana restaurants and use Benihana trademarks in the United States, Latin America, and the Caribbean, while Benihana of Tokyo received those rights for all other territories. In Hawaii, Benihana America granted Benihana of Tokyo a license to continue operating an existing Benihana restaurant in Honolulu. The license restricted Benihana of Tokyo’s menu selection and use of Benihana trademarks and required arbitration of any termination dispute.

Fifteen years after the license was signed, and after Benihana America was purchased by Angelo Gordon & Co., Benihana America notified Benihana of Tokyo that it was in breach of the agreement for selling unauthorized items. After being notified of the breach and receiving two extensions to cure, Benihana of Tokyo agreed to cure the breaches. However, Benihana of Tokyo continued to sell unauthorized items, prompting Benihana of America to terminate the license and seek injunctive relief.

The federal district court in New York City enjoined Benihana of Tokyo from: (1) selling unauthorized food items at the Honolulu location; (2) using certain trademarks in a manner not approved by the license agreement; and (3) making certain arguments in arbitration. Benihana of Tokyo appealed.

The court found that Benihana America presented sufficient evidence to support the district court’s issue of a preliminary injunction. Benihana of Tokyo argued that the menu and advertising provision of the licensing agreement were “ancillary” and its actions constituted “technical violations.” However, Benihana of Tokyo acknowledged that it was forbidden under the license agreement to sell burgers and represented that it would cease doing so. Control over menu and advertising is a central concern for a licensor of a restaurant brand, and the agreement reveals such a concern in this case.

It was likely that Benihana America would suffer an irreparable harm to its “distinct image it has worked so hard to create in the minds of consumers,” absent an injunction keeping Benihana of Tokyo from using its trademarks in violation of the license agreement. Benihana of Tokyo would not be harmed by not offering menu items and using trademarks in a way prohibited by the license agreement, whereas Benihana America faces harm to its brand from the agreement’s violation. The public interest was served by the enforcement of the parties’ lawful agreement.

However, the district court erred in enjoining Benihana of Tokyo from arguing to the arbitral panel that it should be given additional time to cure defaults if it found that Benihana of Tokyo breached the license agreement. The license agreement indicated that the parties intended to grant the arbitrator the power to decide questions of arbitrability, including whether Benihana of Tokyo’s claim for an extended cure period in lieu of termination, was arbitrable.

Benihana America argued that neither an arbitrator nor the court could grant an extended cure period because the remedy was not provided for in the license agreement. Since the parties agreed to submit a dispute to arbitration, a court may not enjoin a party from seeking a particular remedy in arbitration. Restricting the relief Benihana of Tokyo could seek in arbitration went beyond the scope of the district court’s power.

The case is No. 14-841.

Attorneys: Alan H. Fein (Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A.) for Benihana, Inc. Joseph L. Manson III (Law Offices of Joseph L. Manson III) for Benihana of Tokyo, LLC.

Companies: Benihana, Inc.; Benihana of Tokyo, LLC

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