Hot off the line and hot on the heels of trademark infringement

It had to happen; trademark violation in the donut-making industry. Franchisee loses right to make Krispy Kreme donuts.

Krispy Kreme (KK) went to court to stop a franchisee from operating their New York Penn Station booth and another location. This case took place in a federal court and resulted in a preliminary injunction being granted to KK because the franchisee (Satellite Donuts) was lagging behind on their financial obligations, and were in contravention of the Lanham Act.

Evidently, Satellite Donuts was infringing on KK’s trademarks, continuing to run their business without authorization and “diluting” KK’s trademarks by making lousy donuts. Satellite had actually filed for Chapter 11 bankruptcy, which meant they had an automatic stay. However, the bankruptcy court altered the stay to allow KK to request their injunction in federal court.

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This sad saga began in 2008, when Satellite signed a franchise agreement for Penn Station and in 2009 also signed an agreement for a location in Baldwin, NY. When 2010 rolled around, KK sent a demand letter to Satellite pointing out they had failed to pay $310,046 as their part of the franchise agreement(s). Satellite said they could find another party to invest in their business. KK wasn’t impressed and sent a cease and desist letter along with notification their franchise had been terminated.

KK then sued and got a temporary restraining order that let KK get a quality control person at both locations. At the same time, the court ordered Satellite to smarten up and live up to the quality control standards in the agreements they signed. Satellite felt they had been denied the chance to fix their errors; that KK had inflated the debt and didn’t let them bring in a new investor. The court didn’t agree with that argument, stating KK had proven it would suffer irreparable harm if they didn’t get an injunction.

The key to the decision in this case is the judge’s dictum that said; “When in the licensing context unlawful use and consumer confusion have been demonstrated, a finding of irreparable harm is automatic.”

Cases like this can go either way, and if you are faced with a similar situation, your best bet is to discuss your case with a skilled lawyer who handles trademark and copyright law. It’s an area that many people don’t understand, and consequently wind up walking on the wrong side of the law – either intentionally or unintentionally. Either way, the original owner of the trademark has vested rights and if someone infringes on them, they are well within those rights to sue.