The Franchise Memorandum

The U.S. Court of Appeals for the Sixth Circuit recently affirmed a district court’s grant of summary judgment dismissing multiple counterclaims brought by a former franchisee against the plaintiff-franchisor, Buffalo Wild Wings (“BWW”). Buffalo Wild Wings, Inc. v. BW-3 of Akron, Inc., 2019 WL 994040 (6th Cir. Mar. 1, 2019). The parties had entered into a license agreement that authorized BW-3 to operate a Buffalo Wild Wings restaurant in Akron, Ohio. The agreement required BW-3 to operate the restaurant in conformance with the system developed by BWW and to maintain BWW’s standards of quality and appearance. When BWW notified BW-3 that significant renovations were necessary to upgrade the restaurant to BWW’s current design scheme, BW-3 refused to undertake the remodel. BWW then issued a notice of default and brought suit against BW-3, seeking treble damages for violation of the Lanham Act and a declaratory judgment that BWW could terminate the license agreement.

In response, BW-3 raised several counterclaims, including a claim for unfair competition through malicious litigation. To prevail, BW-3 needed to establish that BWW’s lawsuit was objectively baseless and intended to injure BW-3’s ability to be competitive. The court found that BWW’s request for a declaratory judgment was not objectively baseless because it was intended to determine whether BW-3’s obligations under the license agreement to operate the restaurant using the system developed by BWW and to maintain BWW’s standards of quality and appearance included an obligation to remodel the location. In response to BWW’s Lanham Act claim, BW-3 argued that a current licensee does not violate the Lanham Act by using a mark within the scope of its license. The court noted, however, that the question at issue was whether BW-3’s use of BWW’s marks was unauthorized because it did not comply with BWW’s standards of quality and appearance, and therefore exceeded the scope authorized in the license agreement. As a result, the court determined that BWW’s Lanham Act claim was not objectively baseless and affirmed the district court’s grant of summary judgment in favor of BWW on the malicious litigation claim as well as the other counterclaims.