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Kentucky Federal Court Partially Grants Franchisor’s Request for a Preliminary Injunction

Meanwhile, the U.S. District Court for the Western District of Kentucky has partially granted a tax preparation franchisor’s motion for a preliminary injunction against a former franchisee operating a competing tax return preparation business. JTH Tax, Inc. v. Freedom Tax, Inc., 2019 WL 2062519 (W.D. Ky. May 9, 2019). JTH Tax, the franchisor of the Liberty Tax Service system, sued the franchisee for, among other things, trademark infringement under the Lanham Act and violation of the Defend Trade Secrets Act. JTH alleged that the former franchisee was using logos and slogans similar to JTH’s trademarked material as well as JTH’s proprietary practices in operating its new business.

The court granted a preliminary injunction against the franchisee on the basis of the trademark infringement claim, holding that the relevant marks — “Liberty Tax” and “Freedom Tax” and their respective logos — shared several commonalities, including the fact that they both (1) prominently featured the head of Lady Liberty, (2) were composed of red, white, and blue colors, and (3) were styled in all capital letters. The court further observed that even though the word “Freedom” was different from “Liberty,” the words evoked the same connotations and were synonyms of each other. Accordingly, the court held that the marks’ commonalities made it likely that their overall impression would lead an average consumer to assume that they were related.

The court also granted the preliminary injunction on the basis of the Defend Trade Secrets Act claim, holding that an officer of the former franchisee, who was an officer of the new competing tax preparation business, had a duty to maintain the secrecy of JTH Tax’s proprietary information. The court enjoined the officer from using trade secrets learned as a result of her position at the formerly franchised business and from using trade secrets that she knew or had reason to know were acquired by the former franchisee because of its relationship with JTH.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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