India:
Preliminary Injunction Denied: Manufacturer Must Have A Perpetual License To Continue, Court Held
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Plaintiffs and counterclaim-defendants Mrs. Fields Famous
Brands, LLC (“Famous Brands”) and Mrs.
Fields Franchising, LLC (“Fields
Franchising”) appealed from the district court’s
order granting a preliminary injunction in favour of defendant and
counterclaim-plaintiff MFGPC Inc.
(“MFGPC”). Famous Brands is a limited
liability company organized under the laws of the State of Delaware
with its headquarters of business in Broomfield, Colorado. The sole
member of Famous Brands is Mrs. Fields Original Cookies, Inc.
(MFOC), a Delaware corporation with its headquarters of business in
Salt Lake City, Utah. Fields Franchising, LLC is a limited
liability company organized under the laws of the State of Delaware
with its headquarters of business in Salt Lake City, Utah. The sole
member of Fields Franchising is Famous Brands. Defendant MFGPC is a
California corporation with its headquarters of business in Mission
Viejo, California. The Tenth Circuit (“Appellate
Court”) reversed the lower court’s order and held
that the district court’s “perpetual license” finding
was wrong. (Mrs. Fields Franchising, LLC v. MFGPC, 941 F.3d
1221 (10th Cir. 2019))
MFGPC, a popcorn manufacturer, had an exclusive licensing
contract to sell popcorn under the trade name of “Mrs. Fields
brand”. Mrs. Fields received running royalties as well as
guaranteed royalties from MFCPC. In 2014, Mrs. Fields ended the
licensing agreement for failure to pay the guaranteed royalties.
MFGPC opposed the termination, holding that they owed no
outstanding royalties. Mrs. Fields sued for a declaratory judgment
that the license agreement was sufficiently terminated and MFGPC
counterclaimed for breach of contract.
In 2015 and 2016, the district court “granted a motion
to dismiss MFGPC’s claims and allowed Fields franchising to
voluntarily dismiss its claim for a declaratory
judgment.” The district court order granted Fields
Franchising’s motion for judgment and award of attorney fees.
In 2018, the Tenth Circuit issued an order and judgment (A)
affirming Fields Franchising’s voluntary dismissal of its claim
for declaratory judgment, (B) affirming the dismissal of
MFGPC’s account-stated claim “because MFGPC failed to
plead an essential element,” and (C) reversing the dismissal
of MFGPC’s breach of contract claim “because [MFGPC’s]
allegations in the complaint stated a plausible basis for
relief.” On remand, the district court entered for a partial
summary judgment in favour of MFGPC on its counterclaim for breach
of contract, after finding that MFGPC had paid the guaranteed
royalty in full. MFGPC then moved for a preliminary injunction,
arguing that there was a substantial likelihood that it would
prevail at trial on the remedy of specific performance. The
district court granted leave to MFGPC’s motion and ordered Mrs.
Fields to comply with the terms of the licensing contract it had
previously entered into with MFGPC. Mrs. Fields appealed to this
decision at the appellate court.
The district court’s held that MFGPC’s permit to use the
trademark was effectively perpetual, and thus finding effective
breach of contract. The contract renewal clause provided that as
long as MFGPC was not in material default, the agreement would
automatically renew for progressive five-year terms until either
party ends the agreement upon twenty days prior written notice. The
contract termination clause illustrated a set of six specific
circumstances under which Mrs. Fields and MFGPC could some way or
another end the agreement (as opposed to preventing it from
renewing). Perusing the arrangement, in general, implied that
either party could keep the agreement from renewing at the end of
each five years and could terminate it at other times if specific
circumstances occurred.
Further, the appellate court noted that the district court was
incorrect in finding that the agreement afforded MFGPC a perpetual
license whichaffected its examination of MFGPC’s likelihood of
success on the merits and the existence of irreparable harm. The
district court held it would be difficult to accurately calculate
the damages to MFGPC of being permanently deprived of the right to
use the Mrs. Fields trademark for popcorn. But because Mrs. Fields
could prevent the contract from automatically renewing, MFGPC’s
damages would be limited to a period of approximately
two-and-a-half years (i.e., the remainder of the third five-year
term of the contract). Thusly, the appellate court held that the
district court failed in verifying that MFGPC set up a strong
likelihood that it will influence its case for specific
performance.
Concerning the irreparable harm, the district court concluded
that MFGPC would suffer irreparable harm if an injunction is not
granted in their favour, because it would be extremely difficult to
calculate damages for the future and permanent deprivation of
MFGPC’s right to exclusive use of the trademark. The appellate
court held that MFGPC would only suffer a “permanent
deprivation” if the contract afforded it a perpetual license,
which didn’t happen.
Additionally, the district court also held that MFGPC’s
prior profitability was not a good forecast of its future
profitability because the great recession and the warehouse fire
reduced its profits before the violation of the agreement. However,
the appellate court held that the parties operated under the terms
of the agreement for nearly twelve years. The years before or after
the recession could serve as a reasonable proxy to determine
MFGPC’s losses. The warehouse fire did not take place until
over ten years into the parties’ continuing business
relationship and approximately three-and-a-half years after the end
of the recession. Leaving the period of great recession and the
time after the warehouse fire, approximately eight years and three
months’ worth of sales data of MFGPC’s products should be
considered for purposes of calculating damages.
The Appellate court, however, held that, since the agreement did
not give a popcorn manufacturer a perpetual license to sell popcorn
under the Mrs. Fields trademark, the manufacturer should not have
been granted a preliminary injunction ordering Mrs. Fields to
comply with the contract terms.Finally, the appellate court stated
that the district court’s “perpetual license” finding
was wrong since the license agreement was renewed every five years
and allowed any of the parties to stop renewing at the end of each
term. It also allowed either party to terminate under other
circumstances. The appellate court reversed the district
court’s grant of a preliminary injunction in favour of
MFGPC.
Preliminary Injunction Denied: Manufacturer Must
Have A Perpetual License To Continue, Court Held
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