FRANCHISEES: WATCH OUT FOR THOSE SIGNS AFTER TERMINATION OR EXPIRATION
If you've decided to end your status as a franchisee, you should be concerned about potential franchise trademark infringement. Maybe you are unhappy with the ability of your brand to attract business, or maybe you are tired of splitting your revenues with the franchisor each month. Regardless of your reasons to end the franchise affiliation, if you intend to continue operating your business as a non-franchise, you will need to protect yourself after the break-up from claims by your former franchisor that you are not entitled to operate your business under any circumstances, franchised or independent.
Many times, such claims by a franchisor arise when a departing franchisee opts to continue using his old franchise signage, which the departing franchisee has altered in only minor respects. While it is understandable that many former franchisees may be inclined to continue using existing signage and logos (especially considering that these items frequently cost tens of thousands of dollars), it is important that the former franchisee, in such circumstances, take adequate precautions to assure that the signage is not confusingly similar to the former franchisor’s marks. In most cases this will require the franchisee to entirely replace the former franchisor’s signage.
In a very recent case, the United States District Court for the Middle District of Florida ruled on a dispute that arose when a former Howard Johnson franchisee continued to use a modified version of his former franchise signage. Specifically, the franchisee modified his new “independent” business signage to display the name “Howard’s Resort Hotel.” The “new” sign used the same colors and design as the old franchise sign. Marketing materials were used that were also similar to those used under Howard Johnson’s. The court found that the franchisee’s “new” signage was “confusingly similar” to the old franchise signage. In light of these and other factors, the court ordered the franchisee to cease using his “new” signage.
A court has the power to order a number of remedies in a franchise trademark infringement case. First, a court can order a franchisee to cease using confusingly similar marks. Second, a franchisee who has been found to have infringed on its former franchisor’s marks can also be ordered by a court to pay damages to the former franchisor. Third, in the event a court finds that the former franchisee used the marks willfully, a court could, pursuant to applicable law, treble the amount of damages. Finally, a court can also require an infringer to pay the former franchisor’s attorney’s fees in the infringement lawsuit against the former franchisee. As such, the consequences of displaying marks and signage similar to those of a former franchisor can be extremely costly in the event the franchisee is sued for these “infringement” damages.
By recycling old franchise signs and marks, you, as a former franchisee, may run the risk of infringing upon the former franchisor’s marks. As such, whether or not you opt to purchase new business signage, you must make sure your signs are significantly, if not totally, distinguishable from your former franchisor’s signs, and you must be careful not to deceive potential customers into believing you are still conducting business as part of your former franchisor’s system. In this regard, the advice of an experienced franchise lawyer is invaluable.