Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.D. Ill.: Terminated automobile service franchisee enjoined from using franchisor’s trademarks, (Nov 12, 2015)

By Michael Menzhuber, J.D., LL.M.

The federal district court in Chicago granted an automobile service franchisor a preliminary injunction, barring a terminated franchisee from continuing to use the franchisor’s trademarks. In granting the motion, the court determined that (1) the franchisor would likely succeed on the merits; (2) the franchisor would suffer irreparable harm in the absence of injunctive relief; and (3) the balance of harms tipped in the franchisor’s favor (SBA-TLC, LLC v. Merlin Corporation, November 10, 2015, Zagel, J.).

Background. Merlin Corporation operated 12 automotive service shops with SBA-TLC, LLC as the franchisor. After Merlin failed to pay advertising and royalty fees to SBA, as required by the franchise agreement, SBA sent Merlin a notice of default. Merlin did not cure the default and SBA terminated the franchise and exercised its purchase option with regard to some Merlin locations.

Merlin continued to use trademarked SBA proprietary marks after the termination and buy-out. SBA filed a motion for a preliminary injunction to enjoin Merlin’s continued use of SBA trademarks. Merlin did not dispute its continued use of SBA trademarks but claimed that SBA’s termination was wrongful because Merlin cured its default.

Preliminary Injunction. The court noted that a movant seeking a preliminary injunction must show: (1) a likelihood of success on the merits; (2) that it would suffer irreparable harm in the absence of injunctive relief; (3) the balance of harms tips in the movant’s favor; and (4) an injunction would be in the public interest.

With respect to a likelihood of success on the merits, the court noted that, to prevail in a trademark infringement action, the movant must establish that: (1) it had a protectable trademark and (2) there was a likelihood of confusion as to the origin of the non-movant’s product. The court further noted that this was a “low bar” that required only a showing of a “better than negligible” chance of succeeding on the merits. The court found that SBA met this bar because: (1) SBAs’ trademark was properly registered under the Lanham Act; (2) Merlin continued to use SBA’s trademark; and (3) there was likelihood of confusion when trademarked property is used by an unaffiliated business.

The court also determined that SBA, in the absence of injunctive relief, would suffer irreparable harm because it demonstrated that continuing to let Merlin use its trademarked symbol until a final judgment was reached would cause irreparable harm to SBA’s brand. The court also found that, as in other trademark cases, the projected injury to SBA was both serious and difficult to accurately measure. Consequently, it determined that it was appropriate to provide injunctive relief in lieu of a potentially inadequate remedy at law.

Finally, the court determined that the balance of harms tipped in SBA’s favor because: (1) any harm to Merlin, if the injunctive were granted, could be easily compensated by simply reimbursing Merlin for any lost profits and (2) any harm to SBA would be extremely difficult to gauge and could have serious commercial consequences that could linger after the matter was resolved.

The case is No. 15 C 8426.

Attorneys: Julia Claire Colarusso (Gray, Plant, Mooty, Mooty & Bennett, P.A.) for SBA-TLC, LLC. Anthony S. DiVincenzo (DiVincenzo Schoenfield Swartzman) for Merlin Corp.

Companies: Merlin Corp.

Cases: FranchisingDistribution IllinoisNews