Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D.S.C.: ECONO STUDIOS owners infringed ECONO LODGE® trademarks, (Sep 30, 2015)

By Greg Hammond, J.D.

The owner of a family of ECONO LODGE® trademarks, including ECONO LODGE INN & SUITES, was entitled to summary judgment on trademark infringement and unfair competition claims against the operator of an ECONO STUDIOS INN & SUITES. The federal district court in Greenville, South Carolina, concluded that the use of ECONO STUDIOS INN & SUITES designation creates a likelihood of consumer confusion (Choice Hotels International, Inc. v. Zeal, LLC, September 29, 2015, Hendricks, B.).

Choice Hotels International, Inc. owns a family of ECONO LODGE trademarks which it uses in connection with its lodging franchise business. Zeal, LLC and five individuals owned a hotel in Myrtle Beach that was a former ECONO LODGE franchisee. Zeal conceded that it briefly operated the hotel as an ECONO LODGE before changing the name to ECONO STUDIOS INN & SUITES. Choice brought claims for trademark infringement and unfair competition under the Lanham Act and common law. It moved for summary judgment on its claims, including a request for permanent injunction, profits, damages, and costs of the action.

Infringement. The court first determined that Zeal infringed Choice’s trademark when it operated the hotel as an ECONO LODGE and later when it operated under the ECONO STUDIOS name. There was no dispute that Choice owned a valid mark; that Zeal used the ECONO LODGE mark and ECONO STUDIOS name in commerce, without Choice’s authorization; and that both businesses used the mark in connection with the sale, offering for sale, distribution, or advertising of goods or services.

With regard to a likelihood of confusion, the court determined that Zeal’s operation of the hotel prior to deflagging it and removing materials bearing the ECONO LODGE marks created a likelihood of consumer confusion with regard to Zeal’s association with the ECONO LODGE brand. In addition, the court found that the use of the ECONO STUDIOS name was also likely to cause consumer confusion because: (1) Choice’s marks are sufficiently distinctive to warrant protection and are commercially strong because of their long use by Choice, and they acquired secondary meaning because consumers associate them with the ECONO LODGE brand; (2) the parties’ marks are very similar in sound, appearance, and meaning, despite different colors and font; and (3) two consumer complaints made to choice concerning Zeal’s hotel was deemed considerable evidence of actual consumer confusion.

There was insufficient evidence, however, to conclude that that the defendants intended to infringe the plaintiff’s trademarks with their new name. Nevertheless, the court found that use of ECONO STUDIOS INN & SUITES designation created a likelihood of consumer confusion and that it infringed Choice’s ECONO LODGE INN & SUITES mark.

Summary judgment was therefore granted with regard to the Lanham Act trademark infringement claim. The court also granted summary judgment on the unfair competition and common law trademark infringement claims, noting that the standards to prevail on these claims are the same for trademark infringement and Zeal did not specifically contest them.

Injunctive relief. The court next granted injunctive relief, finding that the established likelihood of confusion and actual confusion demonstrated Choice suffered an irreparable injury; the risk of lawsuit and monetary damages were clearly insufficient to deter Zeal from infringing Choice’s marks, demonstrating Choice lacks an adequate remedy at law; the balance of hardships clearly tipped in Choice’s favor; and the public interest is served by preventing consumer confusion in the marketplace.

Zeal was therefore: (1) enjoined from using any of the ECONO LODGE marks, or any mark confusingly similar, including the ECONO STUDIOS INN & SUITES name; (2) ordered to remove all materials bearing any of the referenced marks or ECONO STUDIOS designation; (3) ordered to destroy all materials in its possession or control that bears any of the referenced marks, including the ECONO STUDIOS designation; and (4) ordered to file a sworn statement of compliance within 30 days.

Monetary damages. Lastly, the court found that Choice was entitled to monetary damages and that Zeal has completely disregarded Choice’s discovery requests concerning revenue and expenses. Any materials that Zeal did submit were late and would be unfair and prejudicial to Choice because it would have no way to test the accuracy or veracity of the accounting. The court, however, gave Zeal one final chance to give a compelling explanation for why its documents were not produced in discovery or the court would be forced to award damages, fees, and costs that could total approximately $3 million.

The case number is 4:13-cv-1961.

Attorneys: Theodore Fuller Mitchell (Gray, Layton, Kersh, Solomon, Sigmon, Furr and Smith, PA) for Choice Hotels International Inc. Stephen Jahue Moore (Moore Taylor and Thomas) for Zeal LLC.

Companies: Choice Hotels International Inc.; Zeal LLC

Cases: FranchisingDistribution SouthCarolinaNews