U.S.A.: Court rules holdover franchisee’s continued unauthorized use of franchisor’s trademark constitutes counterfeiting.

Carl ZWISLER | USA | 2012-06-18


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In Century 21 Real Estate, LLC v. Destiny Real Estate Properties, No. 4:11-CV-38 JD, 2011 U.S. Dist. LEXIS 147075 (N.D. Ind. Dec. 19, 2011), the franchisor, Century 21, terminated its relationship with the franchisee after the franchisee failed to make the payments required by the franchise agreement. Century 21 then sued to recover monetary damages in the amount of past due fees, liquidated damages and attorneys’ fees. It also brought claims under the Lanham Act (Federal Trademark Act) for trademark infringement, false advertising, trademark dilution, and counterfeiting, seeking damages and an injunction to enjoin the franchisee’s continued use of Century 21’s trademark. Alleging that the franchisee knowingly and willfully engaged in counterfeiting, Century 21 sought treble damages under the Lanham Act.

The court found in favor of Century 21 on all of its claims in a default judgment proceeding; i.e., a proceeding in which the defendant did not defend the claims. To prevail on its counterfeiting claim, Century 21 had to prove that the franchisee had been using a trademark which was fake and identical with, or substantially indistinguishable from, a registered mark, that Century 21 had registered the mark with the U.S. Patent and Trademark Office for use on the same goods or services for which the franchisee was using the mark, that the franchisee was not authorized to use the mark, and that the franchisee acted with knowledge and intent. The Court noted a split in authority among the federal Courts of Appeals regarding whether the holdover use by a former franchisee or licensee constitutes counterfeiting. Ultimately, the Court decided that a holdover franchisee’s use of a franchisor’s trademark does constitute counterfeiting, noting that it could ‘conceive of no reason why an exfranchisee should escape liability for counterfeiting simply because that person had access to a franchisor’s original marks because of the former relationship and therefore did not need to reproduce an identical or substantially similar mark.”

Because the court found in favor of Century 21 on the counterfeiting claim, it was entitled to receive treble its lost profits or damages resulting from the counterfeiting, in addition to attorneys’ fees. However, the Court decided that the liquidated damages likely accounted for at least a portion of the damages sought by the Lanham Act claims, so it reduced Century 21’s recovery to double its damages. Ultimately, the Court awarded Century 21 damages for past due fees and liquidated damages in the sum of $113,656.94, $9,120.00 representing double the damages resulting from its Lanham Act claims, and its attorneys’ fees and costs.



Carl Zwisler, IDI franchising Country Expert for U.S.A. and Maisa Jean Frank Gray Plant Mooty, Washington, D.C.



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