ARTICLE
9 September 2020

Don't Play Chicken With Court Orders: COVID-19 Is No Excuse For A Terminated Franchisee To Continue Using The Franchisor's Intellectual Property And Trade Secrets

SS
Seyfarth Shaw LLP

Contributor

With more than 900 lawyers across 18 offices, Seyfarth Shaw LLP provides advisory, litigation, and transactional legal services to clients worldwide. Our high-caliber legal representation and advanced delivery capabilities allow us to take on our clients’ unique challenges and opportunities-no matter the scale or complexity. Whether navigating complex litigation, negotiating transformational deals, or advising on cross-border projects, our attorneys achieve exceptional legal outcomes. Our drive for excellence leads us to seek out better ways to work with our clients and each other. We have been first-to-market on many legal service delivery innovations-and we continue to break new ground with our clients every day. This long history of excellence and innovation has created a culture with a sense of purpose and belonging for all. In turn, our culture drives our commitment to the growth of our clients, the diversity of our people, and the resilience of our workforce.
In a decision of first impression issued last week, the United States District Court for the Western District of Tennessee held, in Gus's Franchisor, LLC v. Terrapin Restaurant Partners, LLC.
United States Intellectual Property

In a decision of first impression issued last week, the United States District Court for the Western District of Tennessee held, in Gus's Franchisor, LLC v. Terrapin Restaurant Partners, LLC, that the COVID-19 pandemic did not excuse a terminated franchisee of Gus's World Famous Fried Chicken ("Gus's") from complying with a temporary restraining order (TRO) and permanent injunction prohibiting it from using Gus's trademarks, trade secrets and proprietary business information.

On May 8, 2020, Gus's terminated the defendant's fried chicken restaurant franchise. Two weeks later, Gus's filed suit alleging that the defendant unlawfully continued to use its intellectual property and proprietary information following the termination. The court granted Gus's motion for a TRO and the parties then entered into a permanent injunction on consent that prohibited defendant from operating as a Gus's franchise and using Gus's proprietary information.

The defendant nevertheless—and apparently on the poor advice of counsel—continued to operate as a Gus's restaurant, including using Gus's trade dress and proprietary chicken batter recipe. When Gus's moved for contempt, the defendant attempted to justify its non-compliance by asserting that its counsel had advised that "it was in the best interest of the restaurant and its employees to remain open during the COVID-19 shutdowns." The court rejected this defense, holding that neither advice of counsel nor good-faith conduct excuse a party from civil contempt. The court therefore found defendant in contempt and set the matter down for a hearing to determine the amount of the sanction to be imposed.

While COVID-19 presents challenges for many businesses, it does not permit parties to flout the law and court orders. Parties who do so can expect their chickens to come home to roost.

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.

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More