Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Colo.: ‘Virtual office’ licensor fails to bar master licensee’s trademark use, require assignment of sublicensees, (Feb 25, 2016)

By Michael Menzhuber, J.D., LL.M.

The federal district court in Denver denied a preliminary injunction that would have barred a “virtual office” master licensee from using the licensor’s marks and would have required the assignment of its sublicensees to the licensor. The court found that all three of the “disfavored” categories applied to the request and that the heightened burden for showing irreparable harm or that balance of hardships favored the licensor were not shown (The Intelligent Office System, LLC v. Virtualink Canada, Ltd., February 18, 2016, Arguello, C.).

In February 2006, Intelligent Office System, LLC (IO)—the developer of proprietary methods for establishing, operating, and promoting “virtual offices”—entered into a 20-year master license agreement (MLA) with Virtualink Canada, Ltd. In addition to providing Virtualink the exclusive right to use its trademarks and its license methods in connection with the licensing of sublicensees throughout Canada, the MLA provided for: (1) termination of the MLA if Virtualink was in default of any of its provisions; (2) the opportunity to “cure” under certain conditions; and (3) post-termination obligations, which included the assignment of Virtualink’s sublicensees to IO.

In March and April 2013, IO sent letters to Virtualink stating that it was in default of certain provisions of the MLA. In November 2013, it sent another letter which, in addition to providing an additional notice of default, provided Virtualink the opportunity to cure. The business relationship continued until October 2015 when IO notified Virtualink that it was terminating the MLA. After IO filed an action against Virtualink in December 2015 for breach of contract, breach of guaranty, and common law trademark infringement claims, it filed a motion for a preliminary injunction. The preliminary injunction requested that Virtualink be required to stop using IO’s marks and assign its sublicensees to IO.

The court noted that a party seeking a preliminary injunction must show: (1) irreparable harm unless the injunction is issued; (2) the threatened injury outweighs whatever damages the proposed injunction would cause the opposing party; (3) the injunction, if granted, would not be adverse to the public interest; and (4) a substantial likelihood of success on the merits. The court further noted that a party has a heightened burden of showing these factors if the preliminary injunction would: (1) disturb the status quo; (2) be mandatory as opposed to prohibitory; or (3) provide the party substantially all the relief he may recover after a full trial on the merits.

The court determined that the heightened standard for “disfavored” injunctions applied because IO’s request would: (1) disturb the status quo but “upending” the parties’ MLA; (2) affirmatively require Virtualink to stop using IO’s marks and assign the sublicensees to IO; and (3) provide IO with substantially all the relief, except damages, that it could recover after a full trial on the merits.

Applying this heightened burden to IO’s request, the court found an absence of irreparable harm because the harms IO alleged that it would suffer were not only speculative but also the same ones that it had complained about two to three years earlier. Additionally, the speculative harms alleged by IO, in the absence of injunctive relief, were substantially outweighed by the injuries the proposed injunction would cause Virtualink because IO’s injuries could be addressed with a damage award while Virtualink would lose goodwill and could potentially be put out of business.

The case is No. 15-cv-02724-CMA-MEH.

Attorneys: Laura J. Ellenberger (Robinson Waters & O'Dorisio, P.C.) for The Intelligent Office System, LLC. James D. Kilroy (Law Offices of Snell & Wilmer) for Virtualink Canada, Ltd. and Brian Monteith.

Companies: The Intelligent Office System, LLC; Virtualink Canada, Ltd.

Cases: FranchisingDistribution ColoradoNews