Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—S.D. Tex.: Former hotel franchisee liable for trademark infringement, (Aug 16, 2016)

By Linda O’Brien, J.D., LL.M.

Hotel franchisor Choice Hotels was entitled to summary judgment on the issue of liability for trademark infringement and a permanent injunction against a former franchisee that continued to use the franchisor’s Comfort Inn marks after the termination of the franchise agreement, the federal district court in Houston, Texas, has held (Choice Hotels International, Inc. v. Frontier Hotels, Inc., August 15, 2016, Miller, G.).

Choice Hotels is one of the largest lodging franchisors in the world with approximately 6,000 franchised hotels. Choice Hotels offers hotel and motel services under such brands as Cambria Suites, Comfort Inn, Comfort Suites, Sleep Inn, and Rodeway Inn. Choice Hotels owns 24 different trademarks related to the "COMFORT" mark.

In November 2008, Choice Hotels entered into a franchise agreement with Frontier Hotels, Inc., Muhammad Khan, and Abdus Salam to operate a Comfort Inn in Houston. Under the agreement, the franchisees were required to pay certain fees and, upon termination of the agreement, to immediately discontinue the use of the brand marks. After serving the defendants with two notices of default, Choice Hotel terminated the franchise agreement in December 2014. Upon receiving customer complaints, Choice Hotels learned that the defendants were continuing to use the Comfort Inn hotel marks and sent a cease and desist notice in April 2015. In August 2015, Choice Hotels filed suit, alleging trademark infringement and false designation of origin under the Lanham act, and unfair competition. Before the court was Choice Hotel’s motion for summary judgment.

Trademark infringement. The court determined that there was no genuine issue of material fact regarding the defendants’ engagement in trademark infringement against Choice Hotels. Choice Hotels submitted unopposed evidence that it owned the COMFORT INN® family of marks and the defendants continued to use those legally protected trademarks long after the termination of the franchise agreement and receipt of the April 2015 cease and desist letter.

Furthermore, Choice Hotel established there was a likelihood of confusion since there was uncontested evidence of actual customer confusion. Specifically, Choice Hotels presented evidence of customer complaints and negative guest reviews on a hotel booking website regarding the defendants’ hotel that occurred after the termination of the franchise agreement.

Injunctive relief. The entry of a permanent injunction against the defendants was warranted, the court found. Choice Hotels established its success on the merits, the existence of customer complaints and confusion, that the defendants’ continued use of the Comfort Inn marks would cause irreparable injury, and there was no adequate monetary remedy.

Monetary remedies. However, since Choice Hotels presented no authority indicating its entitlement to liquidated damages due to the franchise agreement or an explanation as to why the case should be deemed exceptional to obtain attorney fees under the Lanham Act, the issues of damages and attorney fees were deferred.

The case is No. 4:15-cv-02355.

Attorneys: Mark Wesley Thayer (Gordon Rees Scully Mansukhani, LLP) for Choice Hotels International, Inc. Michael T. Sprague (Sprague, Rustam & Diamond, PC) for Frontier Hotels, Inc., Muhammad Khan, and Abdus Salam.

Companies: Choice Hotels International, Inc.; Frontier Hotels, Inc.

Cases: FranchisingDistribution TexasNews