On June 14, 2018, a federal trial court in New York issued a decision relating to a restaurant owner’s claim that the restaurant manager was using the owner’s trademarks on social media in violation of the federal trademark law known as the Lanham Act. The trial court denied the owner’s claim, in a ruling that provides some useful lessons to anyone who licenses a trademark. (Thousand Island Park Corp. v. Welser, 5:18-CV-117 (N.D.N.Y. June 14, 2018 (2018 WL 29803231)).)
This case began when the restaurant owner hired a manager to operate a restaurant on Wellesley Island, New York, during the 2017 summer tourist season. The agreement had a 3-year term, but expressly provided that the partied would re-negotiate the terms of the arrangement after the first year. The agreement permitted the manager to operate the facility that would be “known and advertised” as The Guzzle, and required the manager to operate the restaurant on certain dates and times, to maintain the cleanliness of the restaurant, and to pay all gas and electricity bills during the 2017 summer tourist season. The agreement permitted the owner to terminate in its sole discretion if the manager committed an “egregious unremedied misstep,” created an uncured nuisance, or failed to cure any violation of the owner’s rules or regulations after notice.
Less than a month into the summer season, the owner began receiving complaints from customers about cleanliness of the restaurant and other complaints, including a sexual harassment complaint from a former employee. The owner also claimed that the manager refused for pay for electricity or cleaning services for the restaurant.
After the summer season, the parties’ attorneys exchanged correspondence regarding the alleged breaches of the agreement. On December 16, the manager wrote on his personal social media page a “thank you” to the patrons, accompanied by a collage of photos taken during the summer 2017 season. He added, “We look forward to seeing you next year.”
On December 22, the owner’s attorney sent a letter terminating the agreement, effective as of January 3, 2018.
On December 25, the manager posted on the restaurant’s social media page a lengthy message, including an offer to sell a poster of the photo collage of customers’ signatures during the 2017 season, as well as shirts, glasses, sunglasses, and other “commemorative 2017 merchandise” bearing the restaurant’s name and/or logo.
On January 5, 2018, the owner’s attorney sent a letter accusing the manager of infringing the restaurant’s trade name by offering merchandise for sale bearing the restaurant’s name. The letter demanded that the manager cease and desist use of the trademark and provide written confirmation within 5 days. When the manager did not comply, the owner filed a lawsuit in federal court, claiming violations of the federal Lanham Act for unauthorized use of the restaurant’s [unregistered] name and logo, as well as breach of contract.
The court dismissed the Lanham Act claim, finding that the owner’s claim was simply a “garden-variety contract dispute.”
The court began its analysis by pointing out that both social media posts pre-dated the termination date stated in the owner’s notice. The court found “it is implausible that reasonably prudent consumers were likely to be confused” by the social media posts. The December 16 post “is at best backward-looking” because it thanked the customers for the 2017 season. With respect to the “looking forward to seeing you next year” comment, the court stated that permitting that comment to form the basis of a Lanham Act claim “risks transforming a whole range of hopeful comments made during failed business negotiations into Lanham Act claims.”
In contrast, the December 25 post “presents a closer question.” The court found that the owner provided no factual basis that any merchandise sales occurred after the January 3 termination date—or, indeed, that any sales ever occurred.
Lessons for trademark licensors
This case provides some lessons for licensors in future trademark license agreements:
- In any agreement that permits use of your mark, consider including restrictions on the time, place, form, and extent of any use of the marks.
- Consider requiring a review of any of the licensee’s advertising or marketing material before permitting any use of your mark. You may want to include samples of permitted or not permitted uses to speed the review process.
- Bolster items 1 and 2 with the ability to audit the licensee’s use of your mark.
- Include a quick termination clause or an injunctive relief clause in the event of any unpermitted use of your mark.
A good license agreement can help keep the parties out of court.