The Franchise Memorandum

The U.S. District Court for the Western District of Wisconsin has denied a franchisor’s renewed motion for a preliminary injunction against its former franchisee, holding that the franchisor failed to show that its trade dress was entitled to protection or that the ex‐franchisee’s potential violation of the noncompete provision in its franchise agreement posed a threat of irreparable harm to the franchisor. E&G Fran. Sys., Inc. v. Janik, 2018 WL 5630589 (W.D. Wis. Oct. 31, 2018). E&G Franchise Systems operates and licenses others to operate Erbert and Gerbert’s Sandwich Shop restaurants. The Janik Group previously operated an Erbert and Gerbert’s in Plano, Texas. E&G terminated Janik’s franchise agreement and sued Janik when it failed to close its restaurant. After E&G filed a motion for a preliminary injunction, Janik removed E&G’s marks from its restaurant but opened a new restaurant serving sandwiches, salads, and soup at the same location. In response, E&G filed a renewed motion for a preliminary injunction based on Janik’s continued use of E&G’s trade dress and violation of the noncompete provision of the franchise agreement.

The court found that E&G failed to demonstrate that it was likely to succeed on the merits of its trade dress claim. The court noted that, while E&G had registered a number of its trademarks, it had not registered its trade dress. Further, E&G had failed to actually describe specific elements of its trade dress in its court filings, referring instead to a “combination of interior lighting fixtures,” “the layout of the counter space,” and “the color scheme of the location.” E&G further failed to show that its trade dress was not functional, and Janik submitted evidence showing inconsistencies in trade dress between different Erbert and Gerbert’s locations. With respect to E&G’s noncompete claim, the court found that the lack of other Erbert and Gerbert’s restaurants near Plano meant that Janik’s operation of a new restaurant could not divert customers from or compete with any existing Erbert and Gerbert’s restaurants. The court discounted E&G’s suggestion that it would have difficulty attracting another franchisee to an area where a competitor was already operating by pointing to the recent closure of E&G’s other two Texas restaurants. E&G also made no representation that it was attempting to attract another franchisee to the area. As a result, the court found that E&G had either failed to show a protectable business interest justifying the noncompete provision or failed to demonstrate irreparable harm resulting from Janik’s business. Therefore, E&G failed to establish an adequate basis for a preliminary injunction based on either the appearance of Janik’s new restaurant or Janik’s potential violation of the noncompete provision of the franchise agreement.