The Franchise Memorandum

A Massachusetts federal court recently granted summary judgment to the defendants in a trademark dispute that stemmed from their development of restaurants under the plaintiff’s trademarks. Xiao Wei Yang Catering Linkage In Inner Mongolia Co. v. Inner Mongolia Xiao Wei Yang USA, Inc., 2018 WL 4516682 (D. Mass. Sept. 20, 2018). Linkage entered into a five-year cooperation agreement with the defendants to support the defendants’ promotion and development of a franchise market under trademarks owned by Linkage, including the federally registered trademark LITTLE LAMB. The cooperation agreement also appointed the defendants as Linkage’s exclusive agent in the U.S. restaurant franchise market. To maintain such rights, the cooperation agreement required the defendants to meet certain development obligations. The defendants opened LITTLE LAMB restaurants in Boston and Chicago, and Linkage announced the opening of the Boston restaurant in its corporate newsletter, promoted the restaurant on its website, and had representatives visit the restaurant location. The defendants subsequently ceased using the LITTLE LAMB mark before the term of the cooperation agreement expired and changed the name of the Boston restaurant. Linkage then brought a claim for trademark infringement, among other claims.

In opposing the defendants’ motion for summary judgment, Linkage argued that the defendants were not authorized to use its trademarks because they did not satisfy the development timelines required under the cooperation agreement. The court disagreed, finding that the defendants’ development of locations in Boston and Chicago clearly complied with the required development timeline. Linkage alternatively argued that the cooperation agreement had been rescinded, but the court found no evidence that Linkage properly terminated the agreement. Ultimately, the court concluded that Linkage consented to the defendants’ use of its marks based on the express authorization in the cooperation agreement and Linkage’s subsequent conduct, including its involvement in the selection of the Boston restaurant location and promotion of the restaurant opening in its newsletter and on its website. Because Linkage could not show that the defendants had used its marks without permission, the court granted the defendants’ motion for summary judgment on this claim.