It is a story that is not unique. Franchisee fails to pay royalties as required under a franchise agreement. Franchisor terminates franchisee. Franchisee continues to operate. Franchisor sues franchisee. This scenario is not in of itself ‘blog worth.’
What makes it ‘blog worthy’ is the franchisor’s claims against the former franchisee. The franchisor’s complaint against the franchisee, asserts trademark infringement. Trademark infringement has some teeth. If a trademark infringement is found, the franchisor could be entitled to attorney fees and cost. And, the franchisee would be disgorged of all profits from using the name improperly.
Disgorgement is a wonderful graphic word. Disgorgement is [a] remedy requiring a party who profits from illegal or wrongful acts to give up any profits he or she made as a result of his or her illegal or wrongful conduct. The purpose of this remedy is to prevent unjust enrichment.
Under the franchise agreement, the franchisor is entitled to a percentage royalty or flat fee royalty of revenues, which is typically a small percentage of all revenues. Disgorgement is something greater. It is all profits. And, at the end of the day, it was what is. A franchise agreement is licensure allowing franchisees to use the franchisor’s trademark in a limited way, limited time, and under limited conditions. Any, use beyond what is called for in the franchise agreement is trademark infringement.
The case is Ghazi Ghori and Chooza, LLC. https://www.pacermonitor.com/public/case/17827256/KFC_Corporation_v_Ghori_et_al Assertions of the trademark infringement is probably again not unique in the case of the claims against former franchisees, but a noteworthy reminder of the claims available, liability exposure, and need for trademarking.
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Trademarking and Franchise Law