IP Law Daily, TRADEMARK—M.D. Tenn.: Juice bar franchisee enjoined from post-termination trade dress infringement, (Nov 18, 2019)

By Peter Reap, J.D., LL.M.

In competing businesses operating in the location of former franchises, the former franchisee was selling products nearly identical to those of the franchisor in nearly identical bottles.

A terminated juice bar franchisee and its partial owner and guarantor (together, the franchisee) would be prohibited from: (1) operating a competing business as defined in its two franchise agreements with franchisor I love Juice Bar Franchising (Juice Bar); (2) infringing the franchisor’s trade dress; and (3) using any of the franchisor’s marks or intellectual property as defined in the parties’ agreements, the federal district court in Nashville has ruled. Although the franchisor failed to demonstrate a likelihood of success on its claims for trade secret misappropriation, trademark infringement, and unfair competition, it was likely to succeed on the merits of its claims against the franchisee for breach of the noncompetition covenant in the parties’ agreements and for trade dress infringement under the Lanham Act. Further, the other injunctive relief factors weighed in the franchisor’s favor as to these two claims. The court’s temporary restraining order would be entered upon the payment of a security bond in the amount of $10,000, at which time the court would also schedule a hearing on the franchisor’s request for a preliminary injunction (I Love Juice Bar Franchising, LLC v. ILJB Charlotte Juice, LLC, November 15, 2019, Richardson, E.).

In 2017, the parties entered into two franchise agreements for juice bar franchises in Charlotte. In 2019, the franchisee requested early termination and the franchisor sent the franchisee an early termination letter ("Termination Offer"), which included a provision for a termination fee of $5000 and a noncompetition provision. On or around September 19, 2019, the franchisee returned a signed copy of the Termination Offer to the franchisor, however, the franchisee had crossed through the provision requiring the franchisee to pay a $5000 termination fee and the provision prohibiting the franchisee from operating a "[c]ompeting [b]usiness" as defined by the franchise agreements.

Subsequently, the franchisee began operating Queen City Juicery & Wellness Bar (Queen City Juicery) out of the each of the former franchise locations. On November 4, 2019, the franchisor filed this suit, alleging claims for breach of contract; misappropriation of trade secrets; trademark infringement; trade dress infringement; and unfair competition. Before the court was the franchisor’s request for a TRO and preliminary injunction.

Likelihood of success on the merits. The franchisee’s execution and return of the Termination Agreement striking the $5000 termination fee and the noncompetition provision effected a counteroffer, which the franchisor never accepted and in fact expressly rejected, the court determined. Thus, the franchise agreements—the enforceability of which is not otherwise contested—were not terminated by the purported termination agreement and the franchisor was likely to be able to show that the franchisee’s allegedly breaching conduct occurred during a period in which he Franchise Agreements were in effect. As to whether the franchisee’s conduct amounted to a breach, it did not contest that it (1) failed to pay royalty fees and/or other amounts owed to Plaintiff; (2) opened and operated a "[c]ompeting [b]usiness" under the name Queen City Juicery and Wellness Bar; and (3) failed to grant Plaintiff access to its new Point of Sale system and sales and royalties data affiliated with Queen City Juicery. Therefore, the franchisor would likely succeed on the merits of its breach of contract claim.

The franchisor alleged that "I Love Juice Bar’s menu items, recipes, ingredients, pricing structure, sales strategies, customer information, and general operations all constitute trade secrets that are entitled to protection[,]" and that the franchisee wrongfully misappropriated that System, in clear violation of the Tennessee Uniform Trade Secrets Act (TUTSA). The court disagreed. Juice Bar’s menu items, recipes, and ingredients did not fall within the definition of a "trade secret" under TUTSA. Juice Bar’s menu, which was displayed on its website, clearly listed the ingredients of each juice and smoothie. Thus, they were not secret. Additionally, the franchisor did not show that that there was anything unique about its recipes such that they derive independent economic value from not being generally known.

As to the franchisor’s customer information, the franchisor did not show that such information amounts to a trade secret under TUTSA. First, it failed to show how such information was economically valuable. Second, it did not show what it has done to keep customer information confidential. Finally, the franchisor did not sufficiently establish that its pricing structure, sales strategies, and general operations constituted trade secrets under TUTSA. It did not demonstrate how the information derives independent economic value from not being generally known, how others could obtain economic value from its disclosure or use, or what efforts were taken to maintain its secrecy. Thus, the franchisor was not likely to succeed on its trade secrets claim.

As for its trademark infringement claim, the franchisor failed to show that it owns a valid and enforceable registered mark that has been infringed. It generally asserted that it is a licensee of the I Love Juice Bar trademarks and has used them for nearly five (5) years. But it failed to even identify what specific mark(s) (registered or even unregistered) the franchisee has used allegedly in violation of the Lanham Act. Nor did the franchisor submit any documentation evidencing the registration of any mark. Thus, the franchisor did not establish a likelihood of success on this claim.

For a trade dress infringement claim, a plaintiff must prove: 1) that the trade dress in question is distinctive in the marketplace; 2) that the trade dress is primarily nonfunctional; and 3) that the trade dress of the competing good is confusingly similar. Here, the elements of Juice Bar’s bottle that compose its trade dress include: (1) a clear plastic bottle rectangular at its base with sides rising essentially perpendicular from its base before beveling at the top of the bottle; (2) a black cap; (3) a label with a white circle outlined by a thin dark line surrounding the Juice Bar name; (4) a list (in white) of juice names including: "Orange You Glad," "We Got The Beet," "Sweet Greens," "Ginger Greens," "Fresh Greens," and "Coco Pro"; (5) heart-shaped bullet points next to each name on the list; and (6) the words "Shake Well" (in white) at the bottom of the bottle.

Although some of these elements were clearly generic or descriptive, when considered as a whole, the arrangement of each element on the franchisor’s packaging was at least suggestive, according to the court. Thus, the franchisor’s asserted trade dress was distinctive. Further, it was clear that Juice Bar’s label, including listing its unique juice names next to a respective heart shape, was not functional.

Finally, the franchisee’s use of the franchisor’s trade dress was likely to cause consumer confusion. The franchisee was using a nearly identical bottle, selling nearly identical products, out of the locations of the former franchises. The franchisee was also advertising from an Instagram account that was originally created by one of the former franchises with an I Love Juice Bar handle. Thus, for the purposes of issuing a TRO, the franchisor would likely succeed on the merits of its trade dress infringement claim.

As for its unfair competition claim, the franchisor failed to identify its ownership of any specific registered mark or unregistered mark eligible for registration in accordance with the Lanham Act. Thus, it did not establish a likelihood of success on this claim.

Irreparable harm. Absent a temporary restraining order, the franchisor was likely to suffer irreparable harm. Specifically, the franchisor suffered, and would continue to suffer, competitive losses and losses of customer goodwill as a result of the breach of the non-compete provision of the franchise agreements and the infringement of its trade dress. Tennessee courts have found that the breach of a covenant not to compete can cause irreparable damage, the court noted. In addition, in trademark cases, including cases alleging trade dress infringement, courts have found that unauthorized use of a plaintiff’s trade dress cannot be fully compensated and therefore amounts to irreparable harm.

Substantial harm to defendant and others. In the franchise agreements, the franchisee agreed not to operate a competing business. Therefore, the harm that the franchisee would suffer from enjoining such conduct was not harm created by the injunction but rather harm that the franchisee brought upon itself. Thus, the substantial-harm factor weighed in favor of issuing a temporary restraining order.

Public interest. The franchisor has an interest in protecting and preserving the integrity of contracts in Tennessee, the court observed. Moreover, the public interest would also be served by enjoining aesthetic packaging trade dress infringement because it will prevent customer confusion in the marketplace.

This case is No. 3:19-cv-00981.

Attorneys: Charles C. McLaurin (Baker, Donelson, Bearman, Caldwell & Berkowitz, PC) for I Love Juice Bar Franchising, LLC. Robert B. Newkirk, III (Newkirk Law Office, P.A.) for ILJB Charlotte Juice, LLC.

Companies: I Love Juice Bar Franchising, LLC; ILJB Charlotte Juice, LLC

Cases: Trademark TradeSecrets TennesseeNews