For better or worse, not all franchises last forever. For
various reasons, a franchise relationship sometimes terminates
– sometimes on amicable terms; other times, not so much.
Unless the franchisee is subject to a non-compete covenant, the
franchisee often continues in the same business as the franchise
operation, even after the franchise relationship has ended.
And, not wanting to lose any customers, the former franchisee may
seek to tread as closely as possible to the way things worked under
the franchise. It may try to continue to use the same color scheme,
same manner of operations and even a similar name. Of course, the
former franchisee has to do this without violating the
franchisor's intellectual property rights. The tough question
is how close is too close.
A recent decision from the U.S. District Court for the Middle
District of Florida sheds some light on this predicament. In You Fit, Inc. v. Pleasanton Fitness, LLC, You
Fit (the franchisor) had granted a franchise to the defendants (the
franchisee) for the operation of a series of health clubs under the
name "You Fit".
For reasons unknown, the franchise relationship ended, but the
defendants continued to operate health clubs. Not wanting to
violate You Fit's trademark, but still wanting to retain their
customer base, the defendants opted to do business as "Fit
U" (ostensibly an abbreviation of "Fitness
Unlimited"). As it turns out, this was a poor decision.
You Fit sued in federal court for trademark infringement, unfair
competition and related claims. In evaluating the various factors
that go into a "likelihood of confusion" (the test for
trademark infringement), the court determined that the mark
"YOU FIT" was suggestive, and therefore entitled to a
heightened level of protection, even though the words
"you" and "fit" were commonly used by others in
the fitness market. The court also decided that the marks "YOU
FIT" and "FIT U" were "very similar",
despite the fact that one was essentially a transposition of the
other. In evaluating the actual confusion factor, the court quoted
a post from the popular website Yelp, in which a consumer stated
that she was confused by the "Fit U" health club, noting
that it shared a similar name and the "same basic color
scheme" as did You Fit. The Yelp post concluded with
"Very confusing and a big let down."
On balance, the court concluded that the plaintiff franchisor had
satisfied that a likelihood of confusion existed between these two
marks and ruled in favor of the franchisor. The defendant former
franchisee was enjoined from using the mark "FIT U"
"or otherwise using 'Fit ' in any manner in the offer,
sale, or advertising of any goods or services".
This case demonstrates that franchisors who are dissatisfied with
the steps that a former franchisee has taken to distance itself
from the franchise have a powerful means of enforcing their rights.
It also should serve as a cautionary tale to former franchisees who
are trying to remain as close as possible to what they previously
did as a franchisee. In general, a former franchisee is best
advised to distance itself from the franchise in every way that it
can, so as to avoid an outcome like that suffered by in this
case.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.