Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—MDGa: Former Franchisee’s Use of Franchisor’s Marks Constituted Trademark Infringement and False Designation, But Not False Advertising or Cyberpiracy, (Jun 19, 2013)

By Cheryl Beise, J.D. .

Franchisor Overhead Door Corporation (“Overhead Door”) was entitled to default judgment on its Lanham Act claims for trademark infringement and false designation, but not false advertising and cyberpiracy, against a terminated franchisee who continued to use the franchisor’s marks in a website domain name, e-mail address, a yellow pages directory listing, and on work orders, the federal district court in Albany, Georgia has decided (Overhead Door Corp. v. Burger, June 17, 2013, Sands, L.). The court also entered default judgment on Overhead Door’s Georgia Uniform Deceptive Trade Practices Act and open account claims and granted Overhead Door’s request for a permanent injunction and $10,155.39 in damages.

The defendant in the suit, William H. Burger (“Burger”), began operating as an Overhead Door franchisee in 1982, doing business as “Overhead Door Company of Albany.” The parties’ Distributor’s Agreement provided for termination of the agreement by either party “at any time for any reason by giving of 60 days’ written notice” to the other party.

In December 2011, Overhead Door sent a written 60-day notice to Burger advising him the company opted to terminate the Distributor’s Agreement. The notice asked Burger to discontinue using the name “Overhead” and “Overhead Door,” to advise the telephone company to transfer the numbers for “Overhead Door Company of Albany” to Overhead Door, and to return all confidential data to Overhead Door’s corporate office.

On June 28, 2012 Overhead Door filed suit against Burger, asserting claims for trademark infringement, false designation of origin, false advertising, and cyberpiracy under the Lanham Act, and claims for breach of contract, open action, and violations of Georgia’s Uniform Deceptive Trade Practices Act and False Advertising Law. Burger failed to answer the complaint or otherwise appear in the action.

Although Burger changed the name of his business to Albany Door and Hardware, the complaint alleged that Burger continued to use Overhead Door’s federally registered mark, “OVERHEAD DOOR” mark without permission by continuing to use the Internet domain name “overheaddoorcoofalbanyga.com,” the e-mail address “ohalbany@aol.com,” and the same telephone number and addresses listed in the Distributor’s Agreement. A copy of a work order bearing the name “Overhead Door Company of Albany” and the Overhead Door Mark also was attached to the complaint.

Trademark infringement and false designation. The court first determined that Burger’s use of the OVERHEAD DOOR trademark was unauthorized, based on Overhead Door’s showing that it had validly terminated the parties’ Distributor’s Agreement. After the termination of the Distributor’s Agreement, Burger continued to use Overhead Door’s trademark in his website domain name, e-mail address, work orders, and in the Yellow Pages, the court found. “By holding himself out as an Overhead Door franchisee, Burger profited from Overhead’s goodwill and reputation through sales and repairs,” the court said. In addition, when Burger serviced the products, he used service forms with Overhead Door’s actual trademark.

Having decided that Burger was liable for trademark infringement, the court also found that he was liable for false designation of origin. Because a claim of false designation under section 43(a) of the Lanham Act is broader than a claim of trademark infringement, “the facts sufficient to establish the latter also establish former,” the court explained.

False advertising. Overhead Door argued that Burger’s promotion of products through www.overheaddoorcoofalbanyga.com amounted to false advertising because it implied a relationship between him and Overhead Door. A statement is false or misleading under the Lanham Act when (1) it is literally false as a factual matter or (2) literally true or ambiguous but likely to mislead or deceive customers.

In this case, Overhead Door did not identify any literally false statements on Burger’s website. When a statement is literally true or ambiguous but misleading, a plaintiff must introduce some evidence of consumer reaction. Even assuming that Burger’s advertisements were misleading, Overhead Door did not allege or provide evidence of consumer deception.

Cyberpiracy. The Anticybersquatting Consumer Protection Act (“ACPA”) establishes liability for any person who registers or uses a domain name containing another’s trademark with “a bad faith intent to profit from that mark.” Overhead Door claimed that Burger engaged in cybersquatting by using the domain name overheaddoorofalbanyga.com. However, Burger’s prior lawful use of the domain name as an Overhead Door franchisee was strong evidence that undercut a finding a cybersquatting, the court found. Given that Overhead Door failed to identify any other indicia of bad faith, there were insufficient facts to establish a cybersquatting violation, in the court’s view.

State law claims. Because a claim under Georgia’s Uniform Georgia Deceptive Trade Practices Act (“GDPTA”) is “co-extensive” with a Lanham Act claim, Burger’s unauthorized use of Overhead Door’s trademark also violated the GDPTA, the court determined. Similarly, because a claim under the Georgia False Advertising Act (“GFAA”) involves “essentially the same test” as a Lanham Act false advertising claim, Overhead Door’s failure to show a Lanham Act false advertising violation also fell short of establishing a violation of the GFAA.

The court also held that Overhead Door was entitled to default judgment on its open account claim, but not its breach of contract claim. A suit on open account is available as a simplified procedure to recover payment for unpaid goods or services that have been delivered or performed. Because Overhead Door failed to adequately brief the court on its breach of contract claim requesting specific performance, the claim was dismissed without prejudice.

Remedies. Overhead Door was awarded $10,155.39 in compensatory damages on its open account claim arising from Burger’s failure to pay for the purchase of certain goods. The court found that Overhead Door was entitled to a permanent injunction on its trademark infringement and false designation claims. Overhead suffered an irreparable injury inadequately addressed by legal remedies. Because of Burger’s continued infringement and representation of himself as an Overhead Door affiliate, Overhead Door has lost control of its reputation and goodwill, the court found.

The balance of hardships also favored a permanent injunction. Overhead Door could suffer damage to its reputation absent an injunction, whereas Burger’s potential harm from loss of its website, e-mail address, and Overhead Door work orders was easily remedied, given that Burger was not precluded from selling other garage doors, the court said. The public also benefitted from eliminating any confusion about Burger’s affiliation or sponsorship.

The case is No.1:12-cv-101 (WLS).

Attorneys: Donald Alexander Sweat (Gardner, Willis, Sweat, Handelman LLP) for Overhead Door Corp.

Companies: Overhead Door Corp.; Albany Door and Hardware

Cases: FranchisingDistribution GeorgiaNews