Groucho's Franchise Systems, L v. Gelco of GA, Inc.

Filing

Opinion issued by court as to Appellant Groucho's Franchise Systems, LLC. Decision: Affirmed. Opinion type: Non-Published. Opinion method: Per Curiam. The opinion is also available through the Court's Opinions page at this link http://www.ca11.uscourts.gov/opinions.

Case: 16-16279

Date Filed: 03/29/2017

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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
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No. 16-16279
Non-Argument Calendar
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D.C. Docket No. 1:14-cv-01725-LMM
GROUCHO’S FRANCHISE SYSTEMS, LLC,
Plaintiff-Appellant,
versus
GROUCHY’S DELI, INC.,
d.b.a. Grouchy’s New York Deli and Bagels,
Defendant,

GELCO OF GA, INC.,
d.b.a. Grouchy’s New York Deli and Bagels,
Defendant-Appellee.
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Appeal from the United States District Court
for the Northern District of Georgia
________________________
(March 29, 2017)

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Before HULL, WILSON and WILLIAM PRYOR, Circuit Judges.
PER CURIAM:
Groucho’s Franchise Systems, LLC, appeals the summary judgment in favor
of Grouchy’s New York Deli and Bagels. Groucho’s complained that Grouchy’s
use of a similar name for its delicatessen infringed on Groucho’s registered service
mark in violation of the Lanham Act and Georgia state and common law. The
district court ruled that Groucho’s complaint was barred by laches. We affirm.
I. BACKGROUND
In 1941, Groucho’s, a chain of restaurants named for its owner’s
resemblance to Groucho Marx, opened its first location in Charleston, South
Carolina. Groucho’s later expanded its operations to more than 20 locations
throughout the southeastern United States. In 1997, the owner registered the trade
name GROUCHO’S, and in 2003, he registered the service mark GROUCHO’S
FAMOUS for labels applied to sauces and condiments. The mark has the words
GROUCHO’S FAMOUS printed between two circles that surround a side view of
a large man who is wearing a vest and a fedora-style hat, smoking a cigar, and
carrying a colossal deli sandwich.
Grouchy’s New York Deli and Bagels began serving customers in 2000 in
Alpharetta, Georgia. Its owner selected the name Grouchy’s to connote its New
York-style menu. The service mark features a caricature of a partially bald and
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grumpy-faced man whose disproportionately large head forms the “O” in the word
GROUCHY’S, behind which is a drawing of tall buildings.
In February 2004, Grouchy’s received a letter stating that Groucho’s had
“recently learned . . . [about a] restaurant in the Atlanta area under the name
GROUCHY’S,” which—it alleged—was “an infringement of [the GROUCHO’S]
registered mark.” Groucho’s stated that it had “plans to open an Atlanta location in
the not so distant future,” and “[o]nce this occurs, [it] will take the appropriate
legal action to stop this infringement.” Groucho’s advised Grouchy’s to “change
the name of [its] restaurant before [Groucho’s] expands to Atlanta, rather than
waiting until a direct conflict occurs.”
Groucho’s and Grouchy’s continued to build their brands. According to
Groucho’s owner, around August 2005 a franchisee opened a Groucho’s in
Augusta, Georgia, but that location closed a year later. In September 2005,
Grouchy’s registered its service mark.
Grouchy’s also expanded its operations. In 2005, Grouchy’s opened a
second restaurant in Norcross, Georgia, which it sold to S&F Deli in May 2010.
S&F also obtained a license to use the recipes, trademarks and other proprietary
property of Grouchy’s. In 2015, Grouchy’s terminated the license given to S&F.
In July 2013, Groucho’s sent a letter stating that its “attention [had been
drawn to the fact] that [Grouchy’s was] operating restaurant[s] in Alpharetta . . .
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and Norcross,” and because “there is a risk of confusion with [its] use of the
GROUCHY’S mark,” it “regretfully request[ed] that [Grouchy’s] select another
name for [its] business.” After receiving no response, in November 2013,
Groucho’s attorney sent a second letter warning that he would file a lawsuit unless
he “hear[d] back from [Grouchy’s]” about the “trademark matter.” Grouchy’s
responded that it did “not believe there is any likelihood of confusion between the
stylized mark used by [GROUCHY’S] and [GROUCHO’S] word mark.” Between
2013 and 2014, Groucho’s restarted its Augusta location and opened restaurants in
Statesboro and Athens, all of which closed within a few years.
In June 2014, Groucho’s sued Grouchy’s for trademark and service mark
infringement in violation of Section 32 the Lanham Act, 15 U.S.C. § 1114, false
designation of origin in violation of Section 43 of the Act, id. § 1125(a), a violation
of the Georgia Uniform Deceptive Trade Practices Act, Ga. Code § 10-1-371,
violations of the state common law of trademarks and unfair competition, and
unjust enrichment. Groucho’s alleged that the “operati[on of] a delicatessen under
the name GROUCHY’S . . . has caused and will cause confusion in the market
place” and its “unauthorized use of [Groucho’s] Trademarks [and common law
rights in its trademarks] creates a likelihood of confusion, mistake, and deception
as to the source and sponsorship of their goods and services such that consumers
are likely to believe . . . that [Grouchy’s] is associated or affiliated with
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[Groucho’s] and . . . is [its] authorized licensee,” which “injure[s] [Groucho’s]
valuable goodwill and well established business reputation.” Groucho’s alleged
that three incidents evidenced confusion between the two delicatessens: 1) a report
that a payroll company mistakenly called Groucho’s instead of Grouchy’s; 2) two
tweets in which one Twitter user seemed to confuse the two delicatessens; and 3) a
description of an unnamed customer expressing disappointment at being unable to
purchase a Groucho’s sandwich at Grouchy’s.
Grouchy’s filed a motion for summary judgment, which the district court
granted. The district court ruled that Groucho’s complaint was barred by laches.
Groucho’s delayed unreasonably, the district court ruled, in failing to pursue a
complaint of infringement after initially requesting that Grouchy’s change its
name, and that delay unduly prejudiced Grouchy’s. See 15 U.S.C. § 1115(b). The
district court rejected Groucho’s arguments that its delay was excused based on the
doctrine of progressive encroachment and that Grouchy’s was not prejudiced
because it entered a naked license with S&F Deli.
II. STANDARDS OF REVIEW
We apply two standards of review. The entry of summary judgment requires
that we review de novo certain aspects of the decision, such as whether the district
court resolved disputed issues of material fact. See Tana v. Dantanna’s, 611 F.3d
767, 772 (11th Cir. 2010). We review the application of the defense of laches for
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abuse of discretion. Angel Flight of Ga., Inc. v. Angel Flight Am., Inc., 522 F.3d
1200, 1207 (11th Cir. 2008); Conagra, Inc. v. Singleton, 743 F.2d 1508, 1516 n.12
(11th Cir. 1984).
III. DISCUSSION
The question presented in this appeal is whether the equitable doctrine of
laches estopped Groucho’s from complaining about an infringement of its service
mark. Laches “requires proof of three elements: (1) a delay in asserting a right or
claim; (2) that the delay was not excusable; and (3) that the delay caused the
defendant undue prejudice.” Conagra, 743 F.2d at 1517. That test “is a flexible
one: the court must examine both the amount of the delay and the prejudice caused
by that delay.” Citibank, N.A., v. Citibank Group, Inc., 724 F.2d 1540, 1546 (11th
Cir. 1984). Laches is invoked when the delay in commencing a lawsuit exceeds the
statute of limitation for an analogous state law claim, which for this trademark
action is the four-year limitation period applied to an action under the Georgia
Deceptive Trade Practices Act. See Kason Indus., Inc. v. Component Hardware
Grp., Inc., 120 F.3d 1199, 1205 (11th Cir. 1997).
The decision that laches barred Groucho’s complaint was not an abuse of
discretion. Groucho’s waited a decade to challenge Grouchy’s use of an allegedly
infringing service mark. During that time, Grouchy’s “buil[t] up a valuable
business around its trademark.” See 6 J. Thomas McCarthy, McCarthy on
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Trademarks and Unfair Competition § 31:12 (4th ed. Supp. 2017) (“Laches is a
good defense if plaintiff’s long failure to exercise its legal rights has caused
defendant to rely to its detriment by building up a valuable business around its
trademark.”). Without opposition from Groucho’s, Grouchy’s registered its service
mark, opened a second restaurant, sold that restaurant to S&F Deli, and granted
S&F a license to use Grouchy’s recipes and proprietary property. To promote its
business, Grouchy’s invested $50,000 in advertising and more than $3 million in
operations. Grouchy’s “rel[ied] to its detriment” in Groucho’s silence. See id.
Groucho’s likens itself to the plaintiff in Citibank who we concluded “was
not guilty of laches,” but that plaintiff promptly contested the defendants’
infringement. In Citibank, the plaintiff warned the defendants of a potential
infringement when they adopted Citibanc as the name of their holding company,
and after the plaintiff “began widespread use of Citibank,” it sued the defendants
when they included Citibanc in the name of their banks. 724 F.2d at 1546. That the
“defendants knew of plaintiff’s objections but nevertheless proceeded to enlarge
their use of the term” revealed that the defendants “realiz[ed] that the plaintiff
disputed their use and did not intend to acquiesce in it.” Id. at 1546-47. Laches did
not bar the plaintiff’s complaint of infringement, we concluded, because the
defendants had “not relied on the delay by plaintiffs in expanding their use of the
mark” when they did so “in the face of plaintiff’s constant complaints.” Id. at 1547.
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Groucho’s conduct was tortoise-like in comparison to the plaintiff in
Citibank. When Groucho’s sent a letter in 2004, Grouchy’s had been using the
allegedly infringing mark for three years. Groucho’s did not object when, a year
later, Grouchy’s registered the mark and opened a second restaurant. Groucho’s
waited another nine years to sue Grouchy’s. Groucho’s overlooked Grouchy’s
continued infringement.
Groucho’s argues that its delay can be excused under the doctrine of
progressive encroachment, but we disagree. “Under this doctrine, where a
defendant begins use of a trademark . . ., and then directs its marketing or
manufacturing efforts such that is it placed more squarely in competition with the
plaintiff, the plaintiff’s delay is excused.” Kason, 120 F.3d at 1205. Rather than
“discuss encroachment as an excuse for delay,” we use it to determine “when delay
begins.” Id. at 1206. We measure delay “from the time at which the plaintiff knows
or should know [it] has a provable claim for infringement.” Kason, 120 F.3d at
1206; see also Angel Flight, 522 F.3d at 1207. Consequently, there is no delay if
the plaintiff has a “reasonable explanation for failing to sue immediately.” Kason,
120 F.3d at 1206.
Groucho’s fails to give a reasoned explanation for why it waited until 2014
to sue Grouchy’s. Rather than take legal action in 2004 after learning of the alleged
infringement of the Groucho’s mark by Grouchy’s, Groucho’s issued a warning
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that it would sue when it “expand[ed] to Atlanta.” But Groucho’s never opened a
restaurant in Atlanta. Groucho’s also did not take legal action while operating a
restaurant in Augusta in 2005 or oppose Grouchy’s ongoing use of the mark in
Alpharetta or the opening of its second restaurant in Norcross. Between 2013 and
2014, Groucho’s restarted its location in Augusta and opened restaurants in Athens
and Statesboro, but its owner testified that there were no Grouchy’s restaurants in
those cities or in their vicinity. Groucho’s offers no reason why its lawsuit was
actionable in 2014 but not a decade earlier when it learned about the alleged
infringement or immediately after it commenced its operations in Georgia.
Groucho’s also argues that Grouchy’s was not unduly prejudiced because it
gave a naked license to S&F Deli in 2010, but the doctrine of naked licensing does
not aid Groucho’s. The abandonment of a mark by “naked licensing” occurs when
the owner of a mark fails to supervise its licensee and allows the licensee to depart
from the licensor’s quality standards. See Kentucky Fried Chicken Corp. v.
Diversified Packaging Corp., 549 F.2d 368, 387 (5th Cir. 1977). If, as Groucho’s
argues, Grouchy’s entered a naked license, it abandoned rights to a mark it owned.
Were that the case, Groucho’s could not proceed with its complaint about the
infringement of its mark. As Grouchy’s argues, it is inconsistent for Groucho’s to
“allege that . . . [its mark] has been continuously infringed[ and] at the same time
argue that . . . Grouchy’s abandoned its [own] mark . . . .”
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IV. CONCLUSION
We AFFIRM the summary judgment in favor of Grouchy’s.

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