Addressing issues of trademark infringement, the U.S. Court of Appeals for the Fifth Circuit affirmed the U.S. District Court for the Western District of Texas' grant of an injunction in favor of a restaurant franchisor under the Lanham Act. Schlotzsky's Ltd. v. Sterling Purchasing and Nat'l Dist. Co., Inc., 2008 U.S. App. LEXIS 4801 (5th Cir., March 5, 2008) (Southwick, J.).
Plaintiff Schlotzsky's entered an agreement for defendant Sterling Purchasing and Nat'l Dist. Co., Inc. ("Sterling") to act as a "non-exclusive supply chain manager" for the plaintiff's national chain of delis. Sterling began to hold itself out as the exclusive representative for purchasing and distribution of all goods and services with the Schlotzsky's system. The relationship between Schlotzsky's and Sterling was eventually terminated. Schlotzsky sought injunctive relief under the Lanham Act, even though Sterling had not misused Schlotzsky's trademarks, it had instead mischaracterized itself as the exclusive representative of Schlotzsky in various dealings with third parties.
The Fifth Circuit found that Sterling's representation that it was the exclusive distributor violated Section 43(a) of the Lanham Act because it was deceptive as to the "affiliation, connection, or association" between Schlotzsky's and Sterling. See 15 U.S.C. §1125(a)(1). The court found that the congressional purpose for the Lanham Act was to provide remedies for unfair and misleading use of trademarks, which extends beyond mere trademark protection. So even though Sterling did not use Schlotzsky's trademark, Sterling violated Schlotzsky's trademark rights with its mischaracterization of its relationship with Schlotzsky's.
The Fifth Circuit cited Dastar Corp. v. Twentieth Century Fox Film Corp., 539 U.S. 23 (2003), as support, where the Supreme Court stated that Section 43(a) of the Lanham Act is broader than just "trademark protection," as it prohibits actions that deceive consumers and impair a producer's goodwill. The Fifth Circuit then cited to various other cases where 43(a) was applied to situations in which a registered trademark was not involved.
Holding also that the remedial provision of the Lanham Act is broad, the Fifth Circuit also held that the injury requirement under Section 43(a) of the Act can be satisfied even though a party fails to establish a specific amount of actual loss. Since the mischaracterizations were done to maximize Sterling's income at the expense of Schlotzsky's, it was likely that the violations damaged Schlotzsky's. The court thus held that the district court properly granted Schlotzsky's injunctive relief.
Practice Note: This decision points out that trademark rights can extend past the actual use of a trademark in situations in which an infringer has used the goodwill or reputation of a trademark holder without actually using the mark. Companies should be aware that their trademark rights under Section 43(a) are intended to prevent any deception or mischaracterization of their businesses, not just their trademarks.
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