United States: A Court Enjoined A Trademark Licensee From Selling Frozen Pizza Outside The Scope Of The License Agreement

Abstract

An Illinois court granted a preliminary injunction to prevent a trademark licensee from operating pizza restaurants under the licensed trademark because the language of the trademark license agreement did not authorize the trademark to be used on frozen pizzas.

Background

Family members of the Rosati family have run a well-known pizza business known as Rosati's Franchise Systems, Inc. (RFSI) since the 1960s in the Chicago area. In 1998, the family agreed to change RFSI into an intellectual property holding company providing perpetual, non-exclusive, and royalty-free licenses to ten family members (shareholders each holding a 10% stake of RFSI) to run their franchise restaurants separately in exclusive territories and to sell additional franchises.  Specifically, the licenses provided the shareholders with a perpetual, non-exclusive, and royalty-free license to use and to sublicense the use of the Rosati's trademarks and recipes to operate their franchise restaurants.

In 2020, two of the shareholders, defendants Anthony and David Rosati, began selling frozen pizza using the Rosati's recipes and with the Rosati's mark in grocery stores without notifying any of the other shareholders of RFSI. In response, plaintiffs, Michael Rosati and William Rosati (individually and derivatively on behalf of RFSI) sued defendants Anthony and David Rosati and the contracted distributor of the frozen pizzas for trademark infringement. The plaintiffs also sought a preliminary injunction to prevent the defendants from selling frozen pizzas bearing the Rosati's mark until resolution of the suit.  In opposing the requested injunction, defendants asserted that the license agreement was broad enough to permit the sale of frozen pizzas with the Rosati mark in grocery stores.

The Rosati Decision

The Illinois district court agreed with plaintiffs and granted a preliminary injunction.   The court explained that in order to prove entitlement to a preliminary injunction, a party must show (1) that it has some likelihood of success on the merits; (2) that it has no adequate remedy at law; and (3) that without relief it will suffer irreparable harm. If plaintiff satisfies this three-part test, the court must then balance the harm plaintiff would endure without the preliminary injunction with the harm defendant would endure with the preliminary injunction, as well as the impact on the public.

For the likelihood of success analysis, the court found there was a valid trademark and likelihood of confusion based on defendants' sales. Therefore, the issue turned on whether defendants' use of the mark exceeded the bounds of the license agreement.   In reviewing the language of the license agreement, the court explained that, under the "Grant of License" provision of the license agreement, defendants may use and sublicense the use of the trademarks and recipes in connection with operating Rosati's pizza restaurants. Under an "Exclusive Territories" provision of the license, the agreement indicated that defendants are not prohibited from delivering product offered by such restaurants to customers located in territories exclusive to other restaurants. Defendants argued that the "Grant of License" provision and the "Exclusive Territories" provision allowed them to sell frozen pizzas using the Rosati's mark.

Plaintiffs, on the other hand, contended that the language of the "Grant of License" and the "Exclusive Territories" provisions only allowed for use of the marks in pizza restaurants and such use did not extend to frozen pizzas because there is no connection between the sale of frozen pizza and the operation of Rosati's pizza restaurants. Additionally, the license agreement included a provision requiring for quality of services and products sold under the Rosati's name to be commensurate with the quality of products offered by Rosati's pizza restaurants. Plaintiffs argued that frozen pizzas are inferior to the pizzas baked at the restaurant, thereby violating the license agreement.

Using the most natural reading of the license agreement, the court found that defendants' use of the trademark was outside of the bounds of the license agreement as the license only permits the use of the Rosati name in connection with the operation of restaurants and not distribution of frozen pizzas made in a factory.  Therefore, the plaintiffs were likely to succeed on the merits. After evaluating the rest of the factors relevant in an injunction analysis, the court granted the preliminary injunction.

Strategy and Conclusion

Trademark agreements may contain provisions that may appear to be insignificant but can cause the licensee to lose the right to use the trademark if they are violated. 

Further Information

The Rosati  decision can be found here.

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