IP Law Daily, TRADEMARK—D. Ariz.: Preliminary injunction granted in favor of Mexican restaurant franchisor, (Mar 24, 2023)

By Kevin M. Finson

The franchisor was likely to succeed on the merits of a trademark claim and the proposed injunction would only require the franchisor to abide by its contractual obligations.

A franchisor of Mexican restaurants was entitled to a preliminary injunction to prevent its former franchisee from using its trademarks, the U.S. District Court in Phoenix has held. The franchisee was using a slightly different name which had already caused confusion among vendors who contacted the franchisee about the former franchisor’s unpaid bills. The franchisor, however, failed to show a likelihood of success on it breach of contract and trade secret misappropriation claims at this time since the former franchisee had not yet opened a competing restaurant (Sr. Ozzy’s Franchising LLC v. Morales, March 22, 2023, Snow, G.).

Sr. Ozzy’s Franchising, LLC (Sr. Ozzy’s) was the franchisor of Sr. Ozzy’s Tacos y Mariscos branded restaurants. Sr. Ozzy’s entered into a franchise agreement with Jissel Morales and SR Ozzy’s Bar & Grill, LLC to operate a Sr. Ozzy’s branded restaurant. As a part of the agreement, Sr. Ozzy’s provided training and access to an operations manual containing confidential information, such as recipes and business practices. Eventually, Morales ceased communicating with Sr. Ozzy’s and Sr. Ozzy’s exercised its right in the contract to terminate the franchise relationship. Believing that Morales intends to open a Sr. Ozzy’s branded restaurant anyway, Sr. Ozzy’s brought suit for trademark infringement under the Lanham Act, breach of contract, and misappropriation of trade secrets under Arizona trade Secrets Act. Sr. Ozzy’s sought a preliminary injunction barring the defendants from using the marks during the pendency of the litigation. The court considered the traditional injunction factors.

Likelihood of success on the merits. Applying the Ninth Circuit’s Sleekcraft factors, the court held that Sr. Ozzy’s was likely to succeed on the merits of its trademark claim because the marks were highly similar (Morales only added the words “Bar & Grill” to Sr. Ozzy’s registered mark), Morales was currently using Sr. Ozzy’s signage within close proximity to existing Sr. Ozzy’s restaurants and appeared to offer similar, if not identical, services, with shared vendors even confusing the two and contacting Sr. Ozzy’s about Morales’ unpaid bills.

As to the breach of contract and trade secrets claims, however, the court held that breach of a non-compete provision and misappropriation of trade secrets were unclear at this time because Morales had not yet competed or used the trade secrets by opening the restaurant: Sr. Ozzy’s only suspected that he intended to do so.

Irreparable harm. The court held that Sr. Ozzy’s had shown it would suffer irreparable harm from loss of control over its name and branding though Morales’ existing signage. However, the court also held that irreparable harm had not been shown in connection with the trade secrets and misappropriation claims because it was still unclear whether Morales would open a competing restaurant.

Balance of equities and public interest. The equities and public interest generally favored enforcement of valid contracts, and in this case there did not appear to be any dispute that the proposed injunction would only require Morales and his company to abide by their contractual obligations.

The court granted the motion for a preliminary injunction.

The Case is No. 2:23-cv-00238-GMS.

Attorneys: Daniel Francis Nageotte (Greenspoon Marder LLP) for Sr. Ozzy's Franchising LLC and Ozzy’s Franchising LLC.

Companies: Sr. Ozzy's Franchising LLC; Ozzy’s Franchising LLC

Cases: Trademark TradeSecrets ArizonaNews