It is easy to forget that there is a North Carolina Trademark Registration Act. It is in Chapter 80 of the General Statutes.
The Business Court’s mandatory jurisdiction extends to cases brought under Chapter 80 per N.C. Gen. Stat. §7A-45.4(a)(4), so you might expect that Court to be a hotbed of litigation involving trademarks. But the Order last week in Ray Lackey Enterprises, Inc. v. Village Inn Lakeside, Inc., 2015 NCBC 32 represents, as far as I know, only the second time that the Business Court has ruled in a trademark case. The only other case I’m aware of is the Windsor Jewelers decision by Judge Diaz six years ago, in 2009 NCBC 2.
The Plaintiff in the Ray Lackey case, which does business as "Village Inn Pizza Parlor," has two marks registered under the NC Trademark Registration Act and a variety of other unregistered marks which it uses in its business. Those marks are used by a number of company owned restaurants and are also licensed to six separately owned restaurants
The Defendant corporations are owned by former officers and employees of the Plaintiff. One of the Defendants’ principals, Elizabeth Miller, is the daughter of the founder of the Village Inn Pizza Parlor empire.
In July 2014, Ms. Miller opened a new restaurant under the name Village Inn Lakeside which used Village Inn’s licensed marks and pizza boxes and cups identical to those used in Plaintiff’s restaurants. The Defendants also were taking steps to open a second Village Inn Pizza restaurant in Jonesville, NC, and had signed a lease to open a third.
The Plaintiff’s Motion for a Preliminary Injunction seemed pretty cut and dried. A Plaintiff is entitled to injunctive relief "to protect its trademarks when a subsequent competitor adopts those trademarks in the same geographic area for the purpose of confusing consumers." Order ¶25.
To show infringement under NC law, a plaintiff must prove "that it has a valid protectable trademark and that the defendant’s use of a colorable imitation of the trademark is likely to cause confusion among consumers." Order ¶27. Proving a likelihood of confusion creates a presumption of irreparable injury. Order ¶28.
Plaintiff proved intentional copying and a likelihood of confusion by the Defendant’s use of the Village Pizza Parlor logo on a forty foot tall sign next to its Lakeside restaurant and using other marks used by Plaintiff, like "Home of the Great Pizza Buffet" and "Family owned and operated since 1967." Hanging a photograph in Defendants’ restaurant of the founder of the Village Pizza Parlor concept was undoubtedly a factor in the Court finding infringement. Order ¶30.
The Defense of Naked Licensing
The Defendants, faced with all those facts demonstrating infringement, did not deny copying Plaintiff’s marks. Their principal defense to an injunction was that Plaintiff had lost its marks because of "naked licensing." This occurs when "a licensor does not exercise adequate control over its licensee’s use of a licensed trademark such that the trademark may no longer represent the quality of the product or service the consumer has come to expect." Order ¶37 (quoting Freecycle Sunnyvale v. Freecycle Network, 626 F.3d 509 n.1 (9th Cir. 2010)).
How does the trademark owner show "adequate control" over its marks? There are three ways: by having an express, contractual right to control the licensee’s operations, by showing actual control through a course of performance, or by showing a justifiable reliance on the licensee for quality control." Order ¶37.
Plaintiff conceded that it did not have an express, contractual right to control the six separately owned restaurants. But the Court found that Plaintiff, which was collecting management and "office expense" fees from the six "independent" restaurants had sufficient quality control and oversight in place over the use of its trademarks.
Since the Defendants had the burden in this injunctive proceeding of showing a likelihood of success on their affirmative defense of naked licensing the Court found that defense to be no bar to the entry of an injunction.
If you are an IP lawyer, you are probably familiar with the Fourth Circuit’s decision in Pizzeria Uno Corp. v. Temple, 747 F.2d 1522 (4th Cir. 1984), one of that Court’s leading cases on what suffices to show a likelihood of confusion in a trademark case brought under the Lanham Act. There are a number of other trademark infringement cases pitting pizza business against pizza business. There must be something about pizzas and trademark infringement.