The Franchise Memorandum

A federal court in Missouri granted, in part, a franchisor’s motion for a temporary restraining order against a former licensee. Imo’s Franchising, Inc. v. Kanzoua, Inc., 2020 WL 5534425 (E.D. Mo. Sept. 14, 2020). Imo’s Pizza entered into a licensing agreement with Kanzoua, which allowed Kanzoua to operate an Imo’s Pizza restaurant at its gas station/convenience store location. In July 2020, Imo’s Pizza terminated the agreement. Imo’s Pizza alleged that after termination, Kanzoua continued to sell pizza, hold itself out as an Imo’s-affiliated restaurant, and use Imo’s Pizza’s confidential information in contravention of the terms of the licensing agreement. Imo’s Pizza sought a temporary restraining order alleging, inter alia, breach of the noncompetition covenant in the licensing agreement.

The court found that Imo’s Pizza demonstrated that it was likely to succeed on the merits of its complaint, which asserted Kanzoua violated the licensing agreement by continuing to sell pizza at its gas station/convenience store. The court interpreted the noncompete provision in the licensing agreement as prohibiting Kanzoua from selling any pizza at its location for a period of 18 months, not just Imo’s Pizza. The court noted that “Imo’s Pizza’s reputation, goodwill, and brand recognition were just as threatened where one of its former licensees de-affiliates but continues to make a similar product under their own name as they are when the same former Imo’s licensee enters a new license with an independent pizza manufacturer that has its own distinctive recipes and branding.” Moreover, the court found that the risks of confusion, reputational harm, and muddled brand recognition were actually higher in a situation like this case than when a former licensee switches entirely to another recognizable rival pizza brand. Therefore, the court concluded, there was no reason to think that Imo’s Pizza meant anything other than what the plain text of the agreement indicated — that a former licensee may not “engage in . . . any food business which sells any type of pizza.” Accordingly, the court granted Imo’s Pizza’s motion for a temporary restraining order on these grounds.