A recent decision out of federal court in Illinois illustrates
how trademark owners, even with a relatively promising case for
trademark infringement, should not presume that courts will
automatically grant short-term injunctive relief to prevent the
alleged infringer from continuing to use the mark during the course
of the litigation. The matter also shows once again how spending
some time on the details of the business terms in a trademark
license up front could have paid off later to avoid a particularly
dangerous situation for the trademark owner.
In the Illinois case, a trademark owner had licensed its mark for
food products to another company. After a few years, the
relationship deteriorated, and the registered owner of the mark
purported to terminate the license. The licensee resisted, and
eventually claimed that the trademark owner had failed to properly
maintain its rights in the mark and had effectively abandoned the
mark, allowing the licensee to pick up the mark as its true new
owner. Litigation ensued.
In this decision over the granting of a temporary restraining order
(TRO) to prevent the licensee from continuing to use the mark while
the full course of litigation took place, the court acknowledged
that even at this early stage of the case the original owner had a
"better than negligible likelihood of success on the merits of
the case." However, that alone did not give the trademark
owner enough power to win the TRO. Here, although there was clearly
a potential for ongoing damage to the mark owner's rights, the
defendant argued that the mark owner had no existing business that
used the mark, and that therefore the harm to the owner while the
litigation continued would be mitigated. On the other hand, the
TRO, if granted, would nearly destroy the business of the
defendant. And, in the end, while there was some tipping towards
the owner as the likely winner at the end of the case, the court
did not see a slam dunk in the case's future.
In all, applying a balancing test looking at the above factors and
many others, the court determined that the extraordinary remedy of
a TRO was not available to the trademark owner. As with most
litigation, the likelihood that the case will actually go to trial
is fairly small. Thus, as a practical matter, the real impact of
this decision is that the settlement value for the case has likely
been severely tilted toward the defendant.
The lessons for businesses out of a case like this are many-fold.
The first is that injunctive relief, particularly at the beginning
of a case before all of the discovery and trial has unfolded, is
not always a sure thing. Second, the licensing transaction should
address important business terms such as how the license might be
terminated and quality control for the use of the mark by the
licensee. In this case, the transaction failed to address these
issues and, as usual, those shortcomings were not evident until the
relationship went sour. At that point, the licensee discovered he
had leverage to use in the subsequent litigation.
Smart trademark licensing should always be done with the potential
for termination in mind, which may take a bit more time up front.
But, that time will be considered well-spent if the relationship
turns for the worse at a later date.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
