IP Law Daily, TRADEMARK—M.D. Tenn.: Infringement case against franchisor falters for lack of personal jurisdiction, (Jul 12, 2018)

By Stephanie K. Mann, J.D.

A trademark infringement case hit a roadblock when the federal district court in Nashville granted a motion to dismiss for lack of personal jurisdiction and partially granted another motion to dismiss for failure to state a claim. The court found that a franchisor that had no connection to Tennessee, other than agreeing to operate a franchise in the state, failed to properly avail itself of the state, and, because the actions in question were performed by the franchisee, lacked the necessary connections. In addition, an attempt to hold the franchisee vicariously liable failed when the complaint failed to allege the necessary facts (Servpro Intellectual Property, Inc. v. Zerorez Franchising Systems, Inc., July 9, 2018, McCalla, J.).

Cleaning services and remediation companies Servpro Intellectual Property Inc. and Servpro Industries, Inc. own United States Trademarks Nos. 4,515,449 and 4,515,470, which cover the phrase "Here to Help" within the field. Zerorez is a Nevada corporation headquartered in Utah, and sells goods and services in the "carpet and living surface cleaning industry," while its intellectual property franchisee Zeroholding is a Nevada corporation with a principal place of business in Tennessee. Servpro alleged in its complaint that Zerorez’s website displayed the phrase "ZEROREZ® Nashville Is Here To Help!," which infringes on the Servpro’s trademark.

Zerorez filed a motion to dismiss, arguing that the court did not have personal jurisdiction over them because both general jurisdiction and specific jurisdiction are lacking. In addition, Zeroholding alleged that the complaint failed to state a claim upon which relief can be granted.

Jurisdiction. First addressing the lack of personal jurisdiction argument, the court examined whether Zerorez waived the defense of personal jurisdiction by entering a general appearance in the case. The court quickly determined that Zerorez did not waive their personal jurisdiction claim because they informed Servpro of their intent to file a motion to dismiss before entering a general appearance. Therefore, Servpro had no reasonable expectation that Zerorez intended to defend "the matter solely on the merits."

Noting that Servpro must demonstrate by a preponderance of the evidence that the Tennessee court has jurisdiction over Zerorez, the court ultimately found that it lacked specific jurisdiction because the cause of action did not arise out of Zerorez’s actions in Tennessee. In order to have specific jurisdiction, it must be demonstrated that: (1) Zerorez purposefully availed itself of Tennessee; (2) Servpro’s claims arose out of its connections with Tennessee; and (3) the exercise of jurisdiction would be reasonable. According to the court, the only evidence that Zerorez purposefully availed itself to Tennessee was the registering of a domain name and by agreeing to establish a franchise in Nashville.

While the "arises from" element is subject to a lenient standard, said the court, Zerorez’s connections with Tennessee "lack the required substantial connection with the cause of action." Instead, the record indicated that Zeroholding, not Zerorez, was responsible for the underlying acts at question in the case. Therefore, Zerorez’s motion to dismiss was granted.

Failure to state a claim. In response to the complaint, Zeroholding raised two affirmative defenses—that there was no likelihood of confusion and fair use. Zeroholding attempted to argue that the phrase "here to help" was not being used to identify Zeroholding as the source of the service, and that the phrase was being used descriptively. However, at the motion to dismiss stage, the court must interpret the facts in the light most favorable to the plaintiff, and both affirmative defenses failed.

Zeroholding’s argument that it should not be held liable for other defendants’ and third parties’ alleged uses of "here to help" fared much better. Zerholding claimed that the complaint does not allege facts that would subject it to vicarious liability for Zerorez’s and its other franchises’ actions. Servpro did not oppose this argument and Zeroholding’s motion to dismiss was partially granted.

This case is No. 3:17-cv-00699-JPM.

Attorneys: Edward D. Lanquist, Jr. (Patterson Intellectual Property Law, PC) for Servpro Intellectual Property, Inc. and Servpro Industries, Inc. Amy J. Everhart (Everhart Law Firm PLC) and S. Bradley Shipe (Shipe Dosik Law LLC) for Zero Holding, LLC.

Companies: Servpro Intellectual Property, Inc.; Servpro Industries, Inc.; Zero Holding, LLC; Zerorez Franchising Systems, Inc.

Cases: Trademark TennesseeNews