Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. N.J.: Trademark claims against terminated licensee were subject to arbitration in India, (Mar 18, 2014)

By John W. Arden, J.D., LL.M.

Trademark infringement claims brought by the franchisor of Sankalp restaurants against a terminated U.S. master licensee were subject to an arbitration clause of the master license agreement, requiring arbitration in India, according to a magistrate judge in the federal district court in Newark, New Jersey (Sankalp Recreation Pvt. Ltd. v. Prayosha Restaurant Group, LLC, March 17, 2014, Dickson, J.). The licensee’s motion to compel arbitration was granted.

Sankalp Recreation is the franchisor of “Sankalp” South Indian restaurants and the exclusive licensor of the franchise trademark. Prayosha Restaurant Group was the licensor of a master license agreement for use of Sankalp’s intellectual property and trade secrets in certain U.S. restaurant franchises.

Sankalp alleges that Prayosha attempted to sub-license a franchise to a third party, whose franchise did not meet Sankalp’s standards. Sankalp terminated Prayosha for the sub-license, which allegedly constituted a breach of the master license agreement, and brought suit on September 17, 2013. Prayosha filed this motion to compel arbitration pursuant to an arbitration clause of the master license agreement, requiring arbitration of disputes under India law.

Sankalp submitted a letter, stating that arbitration in India was in its initial stages, but covered only the breach of contract claims and not the trademark infringement claims. The franchisor further filed a motion for preliminary injunction, which was denied as moot on January 27, 2014.

To compel arbitration, a court must make a two-step inquiry into (1) whether a valid agreement to arbitrate existed and (2) whether the particular dispute fell within that agreement. There is a presumption in favor of arbitrability.

In this case, the parties agreed that a valid arbitration agreement existed, since they already started arbitrating in India. Thus, the issue became whether or not the trademark claims fell within the scope of the arbitration clause. The court found that the breadth of the arbitration clause encompassed any claims relating to trademark infringement in breach of the master license agreement. Thus, the parties were required to arbitrate those claims.

The clause provided for arbitration of “any dispute/claim or contentions in respect of or arising out of or relating in any matter to the provisions of th[e] agreement.” The master franchise agreement asserted the rights and obligations of the parties with respect to the trademark at issue.

While Sankalp argued that the arbitration clause was silent as to the trademark issues, addressing only the claims arising out of the master license agreement, the court found the argument unpersuasive. “There is no evidence in this case that the Arbitration Clause was meant to apply to the entirety of the Master License Agreement but with the exclusion of the related, and perhaps even anticipated, trademark issues,” the court found. “In fact, the sheer entanglement of the Master License Agreement with the trademark ‘Sankalp’ is enough to indicate the Arbitration Clause was designed to incorporate any trademark infringement claims that may arise.”

Sankalp further argued that it was unclear whether an Indian arbitrator could give it the complete relief it sought in this case. The franchisor failed to provide the court with any case law suggesting that completeness of relief should be considered a factor in compelling arbitration.

Although Sankalp suggested that a judgment by a foreign court could not be used to invalidate U.S. trademark rights, the U.S. Supreme Court suggested otherwise in Scherk v. Alberto-Culver, 417 U.S. 506 (1974). In that case, the U.S. Supreme Court enforced an arbitration clause requiring an American company to arbitrate in a Paris tribunal. “A parochial refusal by the courts of one country to enforce an international arbitration agreement would not only frustrate these purposes, but would invite unseemly and mutually destructive jockeying by the parties to secure tactical litigation advantages … [It would] damage the fabric of international commerce and trade, and imperil the willingness and ability of businessmen to enter into international commercial agreements,” the Supreme Court held.

The fact that Sankalp was the drafter of the master license agreement, within which Indian law was chosen, indicated that it intended to have trademark claims to be arbitrated as well, the magistrate concluded.

The case is Civil Action No. 2:13-cv-05529 (JLL) (JAD).

Attorneys: James Ian Doty (Satterlee Stephens Burke & Burke) for Sankalp Recreation Pvt. Ltd. Jay R. McDaniel (McDaniel Law Firm, P.C.) for Prayosha Restaurant Group, LLC.

Companies: Sankalp Recreation Pvt. Ltd.; Prayosha Restaurant Group, LLC

Cases: FranchisingDistribution NewJerseyNews