In a meaty decision involving the intersection of restrictive covenant and franchise law, the United States District Court for the Southern District of Ohio recently denied a request by D.P. Dough Franchising, LLC ("D.P. Dough"), a calzone restaurant franchisor known for late night delivery in college towns across the nation, to enjoin its former franchisee, Edward Southworth, from operating a series of Eddie's Calzones shops in Athens, Georgia, and Columbia, South Carolina—where D.P. Dough did not even have locations at the time.
D.P. Dough asserted six different causes of action against the defendant, including (1) breach of the franchise agreement, (2) misappropriation of trade secrets, (3) copyright infringement, (4) trademark infringement, trade dress infringement, Ohio Deceptive Trade Practices Act and unfair competition, (5) tortious interference with prospective of contractual business relationships, and (6) unjust enrichment.
In holding that D.P. Dough had failed to establish a likelihood of success on the merits, the court noted that Southworth operated his D.P. Dough franchise for more than two years without a franchise agreement; as such, he was not bound by the disclosure requirements contained within. With respect to the trade secrets claim, the court held that the recipes were posted on the wall of each D.P. Dough location and employees were not required to sign non-disclosure agreements. Additionally, the court held that the Ohio Deceptive Trade Practices Act preempted the claims for tortious interference with prospective or contractual business relationships and unjust enrichment
The court next held that D.P. Dough failed to establish that it would suffer irreparable harm if defendant was allowed to continue to operate its shops in Athens and Columbia, because there is no D.P. Dough location within 60 miles of the Columbia shop, and Southworth had opened his Eddie's Calzones shop in Athens before D.P. Dough later opened a competing restaurant. In addition, Eddie's Calzones had removed any potentially infringing content from its menu in Athens prior to the D.P. Dough location's opening, thereby mitigating any danger of confusion. The court held that with respect to the Athens market, any harm suffered by D.P. Dough would be the result of normal competition, not violation of the franchise agreement.
Third, the court concluded that Eddie's Calzones would suffer harm if the injunction issued. Specifically, Eddie's Calzones has approximately 35 employees who would likely lose their jobs.
Finally, the court determined that while the public has an interest in the enforcement of reasonable restrictive covenants, its interests are also served by fair competition.
This decision illustrates that even outside of the employment context, courts will only enforce restrictive covenants that are reasonably tailored to protect legitimate business interests.
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