The Franchise Memorandum

A federal court in Missouri partially granted franchisees’ motion to dismiss a franchisor’s Lanham Act claims and stayed the proceedings on the surviving claims pending the resolution of parallel proceedings in North Carolina state court. Window World Int’l, LLC v. O’Toole, 2020 WL 7041814 (E.D. Mo. Nov. 30, 2020). Window World, a franchisor of home remodeling products, was sued by dozens of its franchisees in North Carolina state court for various claims, some of which related to the franchisees’ rights to use Window World’s trademarks. Window World later sued three of those franchisees in federal court in Missouri for sending a letter to their customers that included Window World’s trademarks and falsely claimed that their product warranties would expire if the customers did not contact the franchisees. Window World asserted that the letter constituted false advertising, trademark infringement, and trademark dilution under the Lanham Act. The franchisees moved to dismiss all of Window World’s claims or to stay the proceedings pending the resolution of the North Carolina proceedings.

The court dismissed Window World’s false advertising claim, finding that the allegedly deceptive statement was unlikely to influence a purchaser’s decision. It also dismissed Window World’s trademark dilution claim because the dilution alleged did not involve an “unaffiliated product.” However, the court rejected the franchisees’ argument that a licensee could not commit trademark infringement and thus declined to dismiss Window World’s infringement claim. Finally, the court decided to stay the federal proceedings until the North Carolina court ruled on the threshold issue of the scope of the franchisees’ trademark license.