Opinion
Case No. 2:00CV738K.
January 19, 2001.
AMENDED MEMORANDUM DECISION AND ORDER
This matter is before the court on (1) Defendant Tsunami International, Inc.'s ("International") Amended Motion to Dismiss Amended Complaint or Stay Proceedings and for Preliminary Injunction and (2) Plaintiff Tsunami Softgoods, Inc.'s ("Tsunami") Motion for Temporary Restraining Order and Preliminary Injunction. A hearing on the motions was held on January 10, 2001. At the hearing, International was represented by Douglas B. Thayer, and Tsunami was represented by Bryon J. Benevento. Before the hearing, the court considered carefully the memoranda, affidavits, and other materials submitted by the parties. Since taking the matter under advisement, the court has further considered the law and facts relating to these motions. Now being fully advised, the court renders the following Memorandum Decision and Order.
I. BACKGROUND
Todd Arenson and Sheri Johnson Russell formed Tsunami dba Tsunami Sports in 1987. They sought to design and produce clothing and accessories for the ski and outdoor market. Having been granted registrations for the "TSUNAMI" name and marks, Tsunami has used the name and marks in commerce since 1987. On June 1, 1997, Tsunami and International entered into a License Agreement (the "License Agreement" or "Agreement") whereby Tsunami licensed to International, as the exclusive licensee, certain rights to its name and mark. After International allegedly failed to pay royalties and committed other material breaches, Tsunami terminated the License Agreement on September 8, 2000. International, however, has refused to comply with Tsunami's requests to discontinue its use of the name and marks.
Section XX(B) of the License Agreement provides: "Upon the expiration of the license hereunder or the earlier termination hereof, the license shall revert to LICENSOR and LICENSEE thereafter shall not use or refer to the LICENSED MARKS and LICENSOR shall be free to license others to use the LICENSED MARKS in connection with the LICENSED PRODUCTS."
International claims that the termination of the License Agreement was improper because it has been able and willing to pay royalties to Tsunami, but that Tsunami has rebuffed its efforts. International also claims that Tsunami cannot invoke this court's equitable power to order an injunction because Tsunami cannot show that it has clean hands regarding its use of the "TSUNAMI" trademark prior to the alleged termination of the License Agreement. Accordingly, International has moved the court to dismiss Tsunami's Amended Complaint or stay these proceedings and refer the parties to arbitration, as International contends is mandated by the terms of the License Agreement. International also moves the court for a temporary restraining order and preliminary injunction, enjoining and prohibiting Tsunami from using, marketing, advertising, selling, assigning, transferring, or distributing any outerwear bearing the "TSUNAMI" trademark, until such time as the parties' respective rights have been established through arbitration. International claims that Tsunami is impermissibly seeking a determination on the merits of its disputed claim for breach of the License Agreement, which, International asserts, is not permitted under the arbitration provision of the Agreement. International claims that, "were the Court to grant the relief requested by Plaintiff, it would essentially be making a final determination of the controversy between the parties by adjudicating the rights of the parties to the Tsunami trademark, thus emasculating any purpose of arbitration and depriving the parties of their right to contract for resolution of disputes through arbitration." International's Mem. Supp. at 15.
International also argues that it is entitled to a preliminary injunction to preserve the status quo until an arbitrator resolves the underlying dispute. It claims that the status quo is the relationship that the parties had prior to Tsunami's alleged wrongful termination of the License Agreement.
In contrast, Tsunami argues that International has no right to continue to use the "TSUNAMI" name and marks and that International's insistence on doing so is unlawful under the Lanham Act. It claims that such use causes irreparable harm, results in its inability to control its own property, and leads to almost certain confusion among the consuming public. Tsunami argues that it is permitted to seek injunctive relief under the License Agreement and that it is entitled to a temporary restraining order and a preliminary injunction prohibiting International and all persons in active concert or participation with it from using or otherwise infringing upon Tsunami's name and marks under the Lanham Act.
II. DISCUSSION
The License Agreement contains the following provision:
XXIV. ARBITRATION
All disputes, controversies or differences which may arise between the parties hereto, out [of] or in relation to or in connection with this Agreement or any breach thereof, which cannot be settled amicably will be settled finally and bindingly by arbitration; if LICENSOR is the respondent, in Park City, United States by the laws of the State of Utah and the United States, and if LICENSEE is the respondent, in Sherbrooke, Quebec Canada, by the laws of the Province of Quebec. Any award or judgement [sic] on the decision of the arbitration shall be enforceable through entry in any court of competent jurisdiction. Notwithstanding the foregoing, this clause shall not be construed to limit or to preclude LICENSOR from bringing any action in any court of competent jurisdiction for injunctive or other provisional relief as necessary or appropriate.A. International's Motion to Dismiss or Stay and to Refer the Case to Arbitration
While the License Agreement contains an arbitration provision, the arbitration provision very clearly provides an exception to arbitration, which is that Tsunami-and only Tsunami-has the option of seeking injunctive relief in any court of competent jurisdiction. In the instant action, Tsunami has done just that. Tsunami is not seeking money damages, and it is not seeking a declaration of the parties' rights under the License Agreement. Rather, its sole claim for relief is injunctive relief, which is unambiguously permitted by the Agreement. Accordingly, the court declines to dismiss this case. The court will, however, after entering the injunctive relief requested by Tsunami, as discussed below, stay the case pending arbitration of the underlying dispute.
The court is aware of Tsunami's argument that the case should not be stayed because there is no case left ( i.e., there are no remaining claims left to adjudicate because Tsunami has sought only injunctive relief in its Amended Complaint). However, this court will retain jurisdiction over this case until the underlying dispute has been arbitrated or settled.
In addition, it is clear that International seeks to arbitrate the underlying disputes pertaining to the License Agreement, but it claims that it needs assistance in compelling Tsunami to arbitrate. There is no evidence that Tsunami has refused or is unwilling to arbitrate, and, as Tsunami has pointed out, International has failed to institute an arbitration proceeding, thereby rendering it impossible for Tsunami to have refused to participate. Thus, if International seeks assistance in resolving the underlying dispute, it should proceed by filing an arbitration demand in an appropriate arbitration forum.
B. International's Motion for a TRO and Preliminary Injunction
The License Agreement simply does not permit the licensee, International, to request injunctive relief in an appropriate court of law. The arbitration provision, cited above, unambiguously permits only the licensor to escape the arbitration provision to obtain injunctive relief in an appropriate court. In any event, however, International has not satisfied the four elements required for injunctive relief, as discussed below.
C. Tsunami's Motion for TRO and Preliminary Injunction
The Tenth Circuit has held that injunctive relief should issue if the moving party establishes that (1) there is a substantial likelihood that the movant will prevail on the merits; (2) the movant will suffer irreparable harm unless an injunction issues; (3) the threatened injury to the movant outweighs any harm that the proposed injunction might cause the opposing party; and (4) the injunction, if issued, would not be contrary to the public interest. See, e.g., Kiowa Indian Tribe v. Hoover, 150 F.3d 1163, 1171 (10th Cir. 1998).
a. Success on the Merits
Tsunami's entitlement to injunctive relief depends upon whether Tsunami is likely to prevail on the merits of its claim for injunctive relief under the Lanham Act. See e.g., McDonald's Corp. v. Robertson, 147 F.3d 1301, 1307 (11th Cir. 1998). Section 1114(1)(a) of the Lanham Act provides, in relevant part, as follows:
Any person who shall, without the consent of the registrant . . . use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising of any goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive, shall be liable in a civil action by the registrant for the remedies hereinafter provided.15 U.S.C. § 1114(1)(a). Thus, to prevail on a trademark infringement claim, the plaintiff must show that its trademark was used in commerce by the defendant without the registrant's consent, and that the use is likely to deceive, cause confusion, or result in mistake. See, e.g., McDonald's Corp., 147 F.3d at 1307; Burger King Corp., v. Mason, 710 F.2d 1480, 1491 (11th Cir. 1983).
It is clear that Tsunami is the owner of the "TSUNAMI" name and marks, and this court finds that International's use of the name and marks will confuse the public as to the source, origin, sponsorship, or affiliation of International's goods. See, e.g., SR Corp. v. Jiffy Lube Int'l, Inc., 968 F.2d 371, 375 (3d Cir. 1992) (finding that there is a considerable likelihood of confusion when an infringer uses the exact trademark as the plaintiff's). Whether Tsunami has the exclusive right to use the name and marks and whether International is using Tsunami's name and marks without consent merit further discussion.
The parties obviously disagree about the answer to these questions. International argues that it is not using the marks without consent because Tsunami improperly terminated the License Agreement. International maintains that Tsunami had no right to terminate the Agreement because International was not delinquent in royalty payments and it has attempted to continue to perform under the Agreement but has been precluded from doing so by Tsunami. Consequently, it argues, it has the exclusive right under the License Agreement to use the name and marks.
Tsunami, on the other hand, argues that it was justified in terminating the Agreement because of delinquent royalty payments and other breaches, but in any event, it argues that its entitlement to injunctive relief exists independently of any contractual dispute between the parties. Tsunami relies on Jiffy Lube, 968 F.2d at 374, for such a proposition.
The court disagrees with Tsunami's characterization of Jiffy Lube and McDonald's as authority for the proposition that an improper termination is immaterial in evaluating whether an injunction should issue. While numerous district courts have so found, see, e.g., Burger King v. Hall, 770 F. Supp. 633, 638 (S.D.Fla. 1991), no circuit court has adopted such an approach, and, if anything, the two circuits that have addressed the issue have rejected such an approach.
The Burger King court found that the question of alleged wrongful franchise contract termination is irrelevant to a motion for preliminary injunction seeking to enjoin a former franchisee from continuing to use the franchisor's trademarks. It stated that "[a] terminated franchisee's remedy for wrongful termination is an action for money damages, and not the continued unauthorized use of its franchisor's trademarks." 770 F. Supp. at 638. At least one commentator has noted that "only a small minority of jurisdictions follow this approach" and that these cases "may be on the verge of extinction." Thomas L. Casagrande, Using the Lanham Act to Ward Off Preliminary Injunctions, 18 Franchise L. J. 87, 90 n. 38 (Winter 1999).
In McDonald's Corp. v. Robertson, 147 F.3d 1301 (11th Cir. 1998) the court stated that "[w]e find that the Lanham Act's requirement that a franchisor demonstrate that unauthorized trademark use occurred to prevail on the merits of a trademark infringement claim against a franchisee necessitates some type of showing that the franchisor properly terminated the contract purporting to authorize the trademarks' use, thus resulting in the unauthorized use of trademarks by [the defendant]." Id. at 1308 (emphasis added). The court then stated that the district court "properly required [the plaintiff] to make a showing that it properly terminated the franchise agreement." Id. Although the dissenting judge in that case pointed out that the court's statement is merely dicta because the court did not have to reach this issue in light of the undisputed facts that the franchisor properly terminated the agreement, the court clearly did not find that whether the contract was properly terminated was irrelevant.
Similarly, in S R Corporation v. Jiffy Lube, 968 F.2d 371 (3d Cir. 1990), the court determined that "Jiffy Lube will merit preliminary injunctive relief if it can adduce sufficient facts indicating that its termination of [plaintiff's] franchises was proper." Id. at 375 (emphasis added). Thus, the Third Circuit also determined that whether a contact termination was proper was relevant in determining whether injunctive relief was warranted. See also Computer Currents Pub. Corp. v. Jaye Comms., Inc., 968 F. Supp. 684, 688 (N.D.Ga. 1997) ("[I]n order to satisfy the first prerequisite for a preliminary injunction [likelihood of success on the merits], plaintiffs must demonstrate that, under the terms of the Agreement, they were entitled to terminate the Agreement immediately based on defendant's conduct.")
The Tenth Circuit has not addressed the issue of whether some type of showing that an agreement purporting to authorize the trademarks' use was properly terminated is necessary to prevail on the merits of a trademark infringement claim. In the instant case, the court need not reach this issue. Although whether the License Agreement was legitimately terminated in September 2000 is hotly disputed and would require an evidentiary hearing to reach a determination, it is entirely undisputed that International has failed to perform or tender performance under the Agreement since at least August 2000.
International claims that it has been willing and able to meet its obligations since August 2000. Specifically, it claims that its representative even brought a check to an August 2000 meeting with representatives from Tsunami but that Tsunami did not want the money-a scenario that is disputed by Tsunami. International further claims that one of its representatives called Mr. Arenson in September to inquire about the amount owing, but that Mr. Arenson refused to provide the amount. While a factual dispute exists regarding whether International made an informal tender in August, International concedes that it never made a formal tender of the money, and it never filed an interpleader action. If International sought to preserve its rights under the License Agreement, it was required to continue to perform under that Agreement. While International argues that Tsunami precluded such performance, there are mechanisms under which International could have continued to perform. See e.g., Utah Code Ann. § 78-27-1 (Tender Statute). However, it failed to do so. Thus, International appears to have terminated its contractual relationship with Tsunami.
International concedes that much of the information about the amounts owing was in its sole possession.
It is axiomatic that a licensee may not continue to use a trademark without paying its licensor for that use:
Under basic contract principles, when one party to a contract feels that the other contracting party has breached its agreement, the non-breaching party may either stop performance and assume the contract is avoided, or continue its performance and sue for damages. Under no circumstances may the non-breaching party stop performance and continue to take advantage of the contract's benefits.Jiffy Lube, 968 F.2d at 376; see also Computer Currents, 968 F. Supp. at 688.
In this case, it is undisputed that International has not performed under the contract since at least August 2000. Although International may ultimately prevail on its breach of contract claims-thus excusing it from paying the amounts currently due and perhaps entitling it to further damages-this claim does not entitle it to continued rights under the Agreement. See Jiffy Lube, 968 F.2d at 376 (quoting Burger King v. Austin, Bus. Fran. Guide (CCH) ¶ 9788 at 22,069 (S.D.Fla. Dec. 26, 1990)). Thus, the court finds that Tsunami has demonstrated a substantial likelihood of success on the merits of its Lanham Act claim.
b. Irreparable Harm
The court agrees that Tsunami will suffer irreparable harm unless it is granted the injunctive relief that it requests. In trademark infringement cases, grounds for finding irreparable harm include loss of control of reputation, loss of trade, and loss of good will. See, e.g., Opticians Ass'n of Am. v. Independent Opticians of Am., 920 F.2d 187, 195 (3d Cir. 1990). "If another person infringes a trademark, that person borrows the owner's reputation, whose quality no longer lies within the owner's control. This is an injury, even though the borrower does not tarnish it, or divert any sales by its use. . . ." Id. (quotations and citations omitted). There is injury regardless of whether the unauthorized use to which the marks are put is a better use, the same use, or a worse use. Id. at 195-96; Jiffy Lube, 968 F.2d at 378. In addition, "[p]otential damage to reputation constitutes irreparable injury for the purpose of granting a preliminary injunction in a trademark case." Opticians Ass'n, 920 F.2d at 196.
Tsunami has demonstrated that it will lose control over both its reputation and the reputation of its trademark pending resolution of the underlying dispute, and it will likely lose some goodwill. In addition, it has shown a likelihood of confusion. Accordingly, Tsunami has shown that irreparable harm exists.
c. Balance of Harms
The court also finds that the balance of harms weighs in favor of Tsunami. As stated above, Tsunami will suffer irreparable harm if International continues to use Tsunami's name and marks. While International will undoubtedly be harmed by the issuance of an injunction against it, it chose to stop performance under the License Agreement by failing to pay or tender payment of the royalties owing under the Agreement. As stated by the court in Jiffy Lube, this "self-inflicted harm is far outweighed by the immeasurable damage done [to the plaintiff] by the infringement of its trademark[s]." 968 F.2d at 379.
d. Public Interest
Finally, the court finds that there is no strong public interest against Tsunami's requests for injunctive relief. Indeed, the public interest, which is often defined as the right of the public not to be deceived or confused, see Opticians Association, 920 F.2d at 197, would be best served by entry of an injunction.
e. Summary
Based on the foregoing, the court will enter the preliminary injunction requested by Tsunami. Because the material facts regarding the failure to pay or tender payment of royalties owing under the License Agreement since at least August 2000 are undisputed, it is unnecessary to hold an evidentiary hearing regarding Tsunami's motion for a preliminary injunction. Tsunami, however, is required to post security in the amount of $50,000.
The court is not persuaded by International's unclean hands defense. "`A trademark plaintiff with unclean hands is one whose conduct relative to his mark has been so illegal or unconscionable that the court will refuse to hear him.'" Burger King v. Hall, 770 F. Supp. 633, 639 (S.D.Fla. 1991) (quoting 1A J. Gilson, Trademark Protection and Practice § 8.12[13][a], at 8-295 to 8-296 (1990 ed.)); See also Jiffy Lube, 968 F.2d at 377 n. 7. International's only allegation of unclean hands is that Tsunami allegedly told a potential buyer of Tsunami that Tsunami had complete control of the rights and license to the trademark-an allegation that Tsunami disputes. However, even assuming that this representation was made, the court finds that this statement does not amount to illegal or unconscionable conduct relative to the "TSUNAMI" mark. There was no actual misuse of the mark, and the alleged misrepresentation did not affect International. Thus, the alleged misrepresentation certainly does not provide a defense to International's failure to pay royalties under the License Agreement and therefore does not preclude this court from ordering an injunction.
III. CONCLUSION
Therefore, IT IS HEREBY ORDERED that:
International's Amended Motion to Dismiss Amended Complaint or Stay Proceedings and for Preliminary Injunction (docket entry # 5) is GRANTED in part and DENIED in part. Specifically, International's motion to dismiss is DENIED, its motion for a temporary restraining order and preliminary injunction is DENIED, its motion to refer the matter to arbitration is GRANTED, and its motion to stay proceedings pending arbitration is GRANTED.
International's original Motion to Dismiss Complaint and to Stay Proceedings (docket entry #2) is MOOT;
(3) Tsunami's Motion for Temporary Restraining Order and for Preliminary Injunctive Relief (docket entry # 7) is GRANTED, and the court hereby issues the following Preliminary Injunction:
(a) International, its officers, agents, servants, employees, and attorneys, and all persons in active concert or participation with them who receive actual notice of this Preliminary Injunction by personal service or otherwise, are hereby prohibited and enjoined from directly or indirectly using Tsunami's registered service marks and trademarks in any fashion, including United States Registration No. 1,563,459, United States Registration No. 2,017,468, Canada Registration No. 401645, and Italy Registration No. 002176, all for the trademark "TSUNAMI" as used for clothing and outerwear, such as jackets, headwear, pants and footwear, and they are further prohibited and enjoined from directly or indirectly using all similar marks or names that are likely to cause confusion among the public as to the source, origin, sponsorship or affiliation of any goods or services offered by International, except to the extent that the same is expressly allowed by Section XIX of the License Agreement between the parties.
(b) International, its officers, agents, servants, employees, and attorneys, and all persons in active concert or participation with them who receive actual notice of this Preliminary Injunction by personal service or otherwise, are also hereby prohibited and enjoined from using all signs, structures and forms of advertising and promotional materials indicative of Tsunami, its business or products, or its marks and name, and from using all similar signs, structures and forms of advertising and promotional materials that are likely to cause confusion among the public as to the source, origin, sponsorship or affiliation of any goods or services offered by International except to the extent that the same is expressly allowed by Section XIX of the License Agreement between the parties.
International, its officers, agents, servants, employees, and attorneys, and all persons in active concert or participation with them who receive actual notice of this Preliminary Injunction by personal service or otherwise, are also hereby directed and ordered to take immediate, affirmative steps to stop, cancel or discontinue any previously purchased goods, advertising or services referring to or using Tsunami's registered marks or name, or any similar marks or names that are likely to cause confusion among the public as to the source, origin, sponsorship or affiliation of any goods or services offered by International except to the extent that the same is expressly allowed by Section XIX of the License Agreement between the parties.
Pursuant to Federal Rule of Civil Procedure 65(c), Tsunami shall post a security bond in the amount of $50,000 before this Order shall take effect.
(5) This case is stayed pending the resolution of the underlying disputes through arbitration, which is mandatory and binding under the parties' License Agreement.