Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—EDPa: Dunkin’ Donuts Franchisee Preliminarily Enjoined for Alleged Breach of Agreement, (May 20, 2013)

By Jody Coultas, J.D.

Dunkin’ Donuts was granted a preliminary injunction prohibiting a franchisee from operating a suburban Philadelphia store by the federal district court in Reading, Pennsylvania. In addition, the franchisee was enjoined from holding itself out as an authorized Dunkin’ Donuts/Baskin-Robbins franchisee pending further proceedings (Dunkin’ Donuts Franchised Restaurants, LLC v. Claudia I, LLC¸ May 16, 2013, Stengel, L.).

Dunkin’ Donuts alleged that the franchisee breached the franchise agreement by withholding all rent and common area expenses, failing to remodel as provided by the franchise agreement, and failing to pay sales and payroll tax liabilities. Dunkin’ Donuts filed breach of a franchise agreement, trademark infringement, unfair competition, and enforcement of restrictive covenant claims and sought a preliminary injunction.

A preliminary injunction may be granted where the applicant is likely to prevail on the merits of the claim, the applicant will be irreparably harmed absent an injunction, the balance of hardships favors an injunction, and an injunction is in the public interest.

The court held that Dunkin’ Donuts would succeed on its infringement claim. Dunkin’ Donuts was required under the Lanham Act to show that the franchisee’s use of the trademark created confusion concerning the origin of the goods or services, and that use of the marks was unauthorized. The franchisee continued to use the Dunkin’ Donuts marks despite termination of the franchise agreement. There was a great likelihood of consumer confusion as to the relationship between the parties.

The franchisee argued that the case was merely about failure to pay rent and the permanent injunction would irreparably harm it and not benefit Dunkin’ Donuts. Also, it argued that Dunkin Donuts waited too long to request the injunction, and there was no harm aside from money damages as it complied with all other requirements of the lease besides paying rent. The loss of goodwill and reputation due to the failure to control what the franchisee was doing with the marks was sufficient to support an injunction, according to the court.

Although the loss of a franchise detrimentally affected the franchisee’s financial status and the franchise, the court held that the balance of harms favored Dunkin’ Donuts. Also, the public had a right not to be confused by the origin of goods.

The case is No. 12-2010.

Attorneys: Craig R. Tractenberg (Nixon Peabody LLP) for Dunkin’ Donuts Franchised Restaurants, LLC. Ayesha Krishman Hamilton (Hamilton Law Firm, PC) for Claudia I, LLC.

Companies: Dunkin’ Donuts Franchised Restaurants, LLC; Claudia I, LLC

Cases: FranchisingDistribution PennsylvaniaNews