Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Culligan Sues Franchisee for Post-Termination Trademark Use, (Jun 10, 2013)

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

A Culligan water treatment franchisee committed trademark infringement by continuing to use the franchisor’s marks after termination of the franchise, according to a complaint filed by Culligan International in the federal district court in Birmingham, Alabama (Culligan International Co. v. Water Systems of Birmingham, Inc., filed June 7, 2013).

The franchise agreement between the parties gave the franchisee (Water Systems of Birmingham, Inc.) a limited license to use Culligan’s registered trademarks for limited purposes, according to the complaint. In 2010, Culligan terminated the franchise agreement for repeated contract violations and failures to cure the violations. Section 11.6 of the franchise agreement states that the franchisee must “discontinue the use of proprietary Marks and confidential information, and cease doing business under any name or any manner which might tend to give the general public the impression that you are or were at one time connected to Culligan.”

In the termination letter, the franchisee was advised that it must take all steps necessary to comply with post-termination obligations set forth in the franchise agreement by a particular date. After termination, Culligan assigned the territory to a neighboring Culligan franchisee, but Water Systems continued to operate an independent water treatment business as a direct competitor of Culligan, under the Culligan marks. By failing to de-identify the franchise, Water Systems caused “mass confusion in the marketplace,” the complaint alleged. Water Systems allegedly submitted a bid on a water treatment system for a local middle school, using the Culligan name and marks, and won the bid.

Culligan brought claims for federal trademark infringement and false advertising under the Lanham Act. It requested a preliminary and permanent injunction against Water Systems’ use of Culligan marks; compensation for the corrective advertising necessary to dispel public confusion; an order to account and pay for all profits arising from the acts of infringement, false designation of origin, and unfair competition; and an award of attorney fees and costs of suit.

The case is No. 2:13-cv-01085-UNAS-VEH.

Attorneys: Daniel J. Burnick (Sirote & Permutt, P.C.) for Culligan International Co.

Companies: Culligan International Co.; Water Systems of Birmingham, Inc.

News: FranchisingDistribution AlabamaNews