The holder of a trademark has certain rights, among them the power to prohibit another entity from using its mark without its consent. Those rights are subject to equitable defenses, including acquiescence, where the markholder affirmatively represents to another that it may use its mark, who then relies on that representation to its prejudice.
Under a franchise agreement, franchisors grant franchisees the limited license to offer ‘Authorized Products and Services’ using the franchisor’s trademark. But what happens if the franchisee offers products or services that are unauthorized or unapproved by the franchisor?
A recent case outside of the franchise realm suggests using the franchisor‘s trademark for the sale of unauthorized goods or services may be trademark infringement. The case is Pennzoil-Quaker State Company v. Miller Oil and Gas Operation, et al [Miller Oil] out of the fifth circuit federal court.
Pennzoil was granted and had an understanding with Pit Stop [Miller Oil] for a ‘non-exclusive license’ to use and display the Pennzoil marks. In return, Miller Oil agreed that it would not blend any Pennzoil products with non-Pennzoil products, or represent a non-Pennzoil liquid as one produced by Pennzoil. Pennzoil got a third party inquiry. Was Pit Shop oil really Pennzoil? Pennzoil did some investigating. A laboratory test was done on the oil. The oil that Miller was selling under the Pennzoil signage was not Pennzoil. Pennzoil sued for trademark infringement. And, they won. Miller Oil hence forth was prohibited from using the Pennzoil name.
Remember trademark infringement is all about consumer confusion. A trademark denotes the maker of the product. When folks buy a brand trademarked product or service, they are buying on an expectation. Customers are buying on the goodwill and reputation of the brand trademarked name. The sale of the off labeled, mislabeled products is an attempt to fool, misguide, and confuse the customer into buying a product that does not come from the trademarked entity.
Most, if not all, franchise agreements say that franchisees may only sell authorized products and services. The selling of unauthorized products and services probably, if not assuredly, is a breach of the franchise agreement. And, franchisees’ offering and sales of unauthorized products and services may very well be trademark infringement.