The Franchise Memorandum

Meanwhile, a federal court in Ohio denied a franchisor’s motion for a preliminary injunction after finding that the franchisor did not show that it faced irreparable harm from a former franchisee who operated a competing business where the franchisor intended to open a new restaurant. D.P. Dough Franchising, LLC v. Southworth, 2017 WL 4315013 (S.D. Ohio Sept. 26, 2017). Franchisor D.P. Dough alleged a series of claims against Edward Southworth, a former franchisee, including breach of contract, misappropriation of trade secrets, copyright infringement, and trademark infringement. D.P. Dough also sought to enforce the nondiversion of business and noncompete clauses in the parties’ franchise agreement in order to prevent Southworth from operating similar calzone restaurants in new D.P. Dough locations.

The court denied the injunction, noting that while there are public policy interests in enforcing reasonable restrictive covenants, any potential harm from Southworth operating competing restaurants would be the result of fair, normal competition. The court paid particular attention to the scope of the nondiversion and noncompete clauses in the franchise agreement, which restricted the franchisee from diverting or attempting to divert business from D.P. Dough for a period of three years after the termination of the franchise agreement. While the nondiversion clause was unlimited in geographic scope, the noncompete clause prohibited Southworth from operating a competing restaurant within a sixty-mile radius of any D.P. Dough restaurant. The court found that the clauses were ambiguous and held that they were only reasonable if they applied to D.P. Dough restaurants that were already operating at the time the franchise agreement was terminated. Because D.P. Dough did not attempt to open new restaurants until after Southworth had already set up his competing restaurants in new locations, the court refused to enforce the provision. The court also denied the franchisor’s trademark and copyright claims, finding that Southworth was no longer using the franchisor’s marks or other protective information at the time of the injunction hearing. Finally, the court denied D.P. Dough’s trade secret claim because its recipes were generic and commonly known and therefore not entitled to protection.