IP Law Daily, TRADEMARK—W.D. Tex.: Choice Hotels collects over $500,000 in damages for terminated franchisee’s wrongful trademark use, (Sep 21, 2022)

By Elizabeth C. Pope, J.D.

The former franchisee received repeated written notices that it was no longer authorized to use the “Comfort Suites” or “Quality Suites” trademarks on its hotel.

The federal district court in Waco, Texas awarded Choice Hotels, a hotel franchisor, over $500,000 in damages for trademark infringement under the Lanham Act where a former franchisee willfully continued for 130 days to use Choice’s marks despite the written termination of two franchise agreements and the issuance of a cease-and-desist letter. The court awarded Choice Hotels $412,287.30 for the 130 days the marks were used without permission. Because the former franchisee failed to provide data regarding its profits during the 130-day infringement period, it was appropriate for Choice Hotels to use 2017 historical data regarding monthly gross room revenue for the San Antonio hotel to calculate the lost profits amount. The court determined the former franchisee was on notice that continued use of the trademark was prohibited. As such, the court added additional damages of $100,000 to the amounts for disgorged profits and loss of royalties. Costs and attorney fees were also awarded (Choice Hotels International, Inc. v. Gosla Family Trust, September 16, 2022, Albright, A.).

Chose Hotels is a hotel franchisor, with brands such as Comfort Suites and Quality Suites. In August 2019, the court granted summary judgment to Choice Hotels in its trademark infringement dispute with a former franchisee, the Gosla Family Trust (the “Trust”). The court found the Trust liable for trademark infringement under the Lanham Act and common law trademark infringement and unfair competition. For 130 days, the Trust had continued to use the Quality and Comfort family of marks without permission on its roadside and building signs and when answering the telephone at its hotel in San Antonio, Texas. The infringement occurred despite repeated written notice that such use was unauthorized, including in a settlement agreement terminating an earlier franchise agreement, a notice of termination of the more recent franchise agreement and a cease and desist letter.

Choice Hotels sought lost profits, as well as treble damages, costs, and attorney fees. After the 2019 finding on liability, the court sought additional briefing regarding the damage award.

Franchise profits. The court awarded Choice Hotels a disgorgement of the Trust’s profits in the amount of $412,287.30 for the 130 days the marks were used without permission. To arrive at this figure it considered in turn the six Seatrax factors used by the Fifth Circuit when considering whether to award profits: (1) whether a defendant intended to confuse or deceive; (2) whether sales have been diverted; (3) the adequacy of other remedies; (4) any unreasonable delay in asserting rights; (5) public interest concerns; and (6) whether “palming off” has occurred (Seatrax, Inc. v. Sonbeck Int’l, Inc., 200 F.3d 358 (5th Cir. 2000)). The court determined that all six factors suggested an award of profits. In particular, regarding the Trust’s intent to deceive, the court noted that the franchisee used the marks in defiance of the 2014 settlement agreement, the 2015 franchise agreement, notice of termination of the 2015 agreement, and a 2018 cease and desist letter.

Because the Trust failed to provide data regarding its profits during the 130-day infringement period, it was appropriate for Choice Hotels to use 2017 historical data regarding monthly gross room revenue for the San Antonio hotel to calculate the lost profits amount.

Lost royalty fees. Using the 2017 historical data, the court determined the appropriate measure of damages for lost royalty fees to be $19,171.36.

Treble damages. Under the Lanham Act, a court may provide for treble damages when a defendant intentionally uses a trademark, although the court noted that remedies under the Lanham Act are awarded according to a court’s discretion. In this instance the court determined the Trust was on notice that continued use of the trademark was prohibited. As such, the court added additional damages of $100,000 to the amounts for disgorged profits and loss of royalties, for a total damage award of $531,458.66. Costs and attorney fees were also awarded.

The Case is No. 5:18-cv-00648-ADA.

Attorneys: Christopher M. Raney (Gordon Rees Scully Mansukhani, LLP) for Choice Hotels International, Inc. Yusuf Gosla for the Gosla Family Trust.

Companies: Choice Hotels International, Inc.; Gosla Family Trust

Cases: Trademark TexasNews