Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Md.: Movie theatre terminates management agreement, commits trademark infringement, (Sep 5, 2014)

By Greg Hammond, J.D.

A movie theater management company succeeded on its trademark infringement claim, and could pursue breach of contract claims against a movie theater, arising from the allegedly wrongful termination of a Management Agreement (MA), the federal district court in Baltimore decided. Excluding the trademark infringement claim, the court denied both parties’ motions for partial summary judgment, finding multiple material facts in dispute with regard to the breach of the MA claims (R/C Theatres Management Corp. v. Metro Movies, LLC, September 4, 2014, Motz, J.).

Background. R/C Theatres Management Corp. provides management services for the day-to-day operations of movie theaters. The company entered into an MA with Metro Movies, LLC in June 2012, and affixed its logo to various marketing and operations materials, including ticket stock paper. The MA—which the court analogized to a franchise agreement—provided both parties with the right to terminate the contract with 180 days’ notice for no reason, 10 days’ notice and opportunity to cure for monetary defaults, and 30 days’ notice and opportunity to cure for non-monetary defaults.

In January 2013, Metro sent R/C a letter alleging several defaults and demanding that R/C cure them within 10 days. However, Metro simultaneously sent a letter to film distribution companies, informing them that they would no longer be using R/C Theatre Management. R/C refuted the alleged defaults, informed Metro that R/C considered it in material breach for attempting to improperly terminate the MA, and stated its willingness to consider an amicable resolution to the dispute. Nevertheless, Metro started managing the theater itself in February 2013. Despite requests that Metro remove R/C’s logo from printed tickets, Metro continued to use the paper with R/C’s logo for over a month.

R/C filed suit, alleging—in part—that Metro breached the MA and committed trademark infringement. Metro counterclaimed, alleging, in part, breach of the MA. Both parties moved for partial summary judgment on those claims.

Breach of MA. Metro alleged that R/C breached the MA by paying itself from the operating account without prior approval; for refusing to document those payments at Metro’s request; and for anticipatory repudiation. Conversely, R/C argued that it was never in default, that it did not repudiate the MA, and that Metro breached the agreement by terminating without cause and prior to the completion of the 180 day notice period.

The court first determined that R/C did not commit anticipatory repudiation, because the company responded to Metro’s letter, (1) contesting the alleged defaults while continuing to perform under the MA, and (2) stating it was willing to discuss an amicable resolution of the matter. Second, the court found that R/C cited evidence that disputes nearly every one of the alleged defaults, and that material facts were in dispute regarding whether either party materially breached the MA. Consequently, both motions for partial summary judgment, with regard to the breach of contract claims, were denied.

Trademark infringement. To prevail on a trademark infringement claim under the Lanham Act, R/C was required to prove: (1) it owns a valid mark; (2) Metro used the mark “in commerce” without R/C’s permission; (3) Metro used the mark in connection with selling or distributing goods or services; and (4) Metro’s use of the mark was likely to confuse consumers. Metro did not dispute that R/C has a registered trademark for its logo, or that Metro used the mark in commerce in connection with goods or services. However, Metro argued that it was permitted to use the logo after the MA ended, and that it was not likely to confuse consumers.

The court disagreed with both arguments, first noting that Metro used the logo for over a month after R/C requested that Metro cease, demonstrating a lack of authorization. In addition, the court determined that Metro’s use of the mark was likely to confuse consumers, noting that the continued use of a mark—without authorization—constituted a clear probable risk that consumers will be confused. Metro’s good faith efforts defense was found insufficient, as it used the mark for over a month after the parties terminated their relationship. Lastly, because R/C was not required to prove actual damages to withstand summary judgment, the court granted R/C’s motion for partial summary judgment of this claim, and denied Metro’s motion.

The case number is JFM-13-00984.

Attorneys: Steven K. Fedder (Fedder & Janofsky LLC) for R/C Theatre Management Corp. JoAnna M. Esty (Majesty Law Group) for Metro Movies LLC.

Companies: R/C Theatre Management Corp.; Metro Movies LLC

Cases: FranchisingDistribution MarylandNews