Little Caesar Enterprises, Inc. v. Sioux Falls Pizza Company, Inc. et al
Filing
26
ORDER denying 2 Motion for Preliminary Injunction; denying 2 Motion for TRO. Signed by Chief Judge Karen E. Schreier on 8/3/2012. (KC)
UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
LITTLE CAESAR ENTERPRISES,
INC., a Michigan corporation,
Plaintiff,
vs.
SIOUX FALLS PIZZA COMPANY,
INC., a South Dakota corporation;
and JAMES FISCHER, a South
Dakota citizen,
Defendants.
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CIV. 12-4111-KES
ORDER DENYING PLAINTIFF’S
MOTION FOR A TEMPORARY
RESTRAINING ORDER OR
PRELIMINARY INJUNCTION
Plaintiff, Little Caesar Enterprises, Inc. (Little Caesars), moves for a
temporary restraining order or preliminary injunction enjoining defendants,
Sioux Falls Pizza Co., Inc., and James Fischer (collectively SFPC), from offering
all day, every day ready-for-pick-up pizzas because plaintiff alleges that
defendants’ use of its “system” misappropriates Little Caesars’ trade secrets.
Docket 2. Little Caesars also asks the court to require defendants to modify the
interior and exterior of its location to sufficiently distinguish it from Little
Caesars’ trade dress. Docket 2. SFPC resists that motion and claims that Little
Caesars’ system is not the type of information that constitutes a trade secret
and that it completely altered the appearance of its store to distinguish it from
Little Caesars. Docket 19. SFPC asserts that Little Caesars cannot satisfy the
Dataphase factors such that a preliminary injunction is appropriate. SFPC also
argues that the trade dress claim is moot because SFPC has voluntarily made
changes to its location. For the following reasons, the motion for a temporary
restraining order or preliminary injunction is denied.
BACKGROUND
The pertinent facts to this order are as follows:
Little Caesar Enterprises, Inc., is a corporation organized under the laws
of Michigan, and its principal place of business is in Detroit, Michigan. Little
Caesar Enterprises, Inc., is the national franchisor of the pizza restaurants that
operate under the name Little Caesars. Little Caesars restaurants come in many
types, but most Little Caesars locations operate under a carryout only format.
This carryout format makes Little Caesars restaurants dependent upon the
“Hot-N-Ready” pizza offering that provides a significant portion of Little Caesars’
revenue and is the center of this litigation.
Sioux Falls Pizza Co., Inc., is a company incorporated under the laws of
South Dakota with its principal place of business in Sioux Falls, South Dakota.
James Fischer is the sole shareholder of SFPC. SFPC, then operating under the
name Pinnacle Pizza,1 formed in 1991 to purchase three existing Little Caesars
restaurants in Sioux Falls. In June of 1991, SFPC executed three separate
franchise agreements with Little Caesars. SFPC’s license to operate these
franchise stores expired on June 4, 2012. Immediately following the expiration
of SFPC’s franchise agreements on June 4, 2012, Fischer opened a competing
pizza restaurant called Pizza Patrol at the location of one of his former Little
Caesars’ franchises on 10th Street and Cliff Avenue in Sioux Falls. Docket 1
1
Fisher changed the name of his business from Pinnacle Pizza Company,
Inc., to Sioux Falls Pizza Company, Inc., in April of 2011. Docket 4 at 3 n.1.
2
¶ 32; Docket 20 at 2. There Fischer sells all day, every day ready-for-pick-up
pizza2 as well as numerous other items that are not sold by Little Caesars and
are not ready-made. It is undisputed that all Pizza Patrol trademarks, recipes,
food products, and product specifications are licensed to Fischer by Orion
Foods. Docket 20 at 2.
The alleged trade secret at issue in this case is the use of a concept
developed within Little Caesars that is now known as the “Hot-N-Ready” system
(the system).3 Little Caesars and Fischer have been entangled in legal disputes
surrounding the ownership and use of the Hot-N-Ready system and Fischer’s
franchise agreements since approximately 2004.4
2
The only “ready-to-go” products that Pizza Patrol currently sells are
medium cheese and pepperoni pizzas. These are the only items on the Pizza
Patrol menu that Little Caesars currently claims is produced using its trade
secret system.
3
Little Caesars admits that the concept of having hot whole pizzas
available to be purchased all day, every day, is not a novel concept or trade
secret, but that the process of how to do so in a competitive and profitable way
is a trade secret. Docket 4 at 3.
4
In their most recent litigation, SFPC sued Little Caesars for declaratory
relief that it was entitled to renew its franchise agreements or that it was
relieved of its right not to compete and that it did not have to re-sell certain
items to Little Caesars. Sioux Falls Pizza Co. v. Little Caesar Enters., Inc., ____ F.
Supp. 2d ____, 2012 WL 871753, at *1 (D.S.D. Mar. 14, 2012). The court found
in favor of Little Caesars on most issues, but determined that SFPC could
compete with Little Caesars because Little Caesars “ ‘elect[ed] not to oppose’
Sioux Falls Pizza’s summary judgment motion seeking to declare the noncompete language unenforceable.” Id. at *9. That action became final in June of
2012 when the court entered a judgment of dismissal. Sioux Falls Pizza Co. v.
Little Caesar Enters., Inc., Civ. No. 11-4047, Docket 71.
3
Development of the Hot-N-Ready system began in 1997, when Little
Caesars asked its franchisees to share information about successful sales
promotions, including ready-for-pick-up pizzas, in preparation for a series of
regional franchisee workshops. Docket 4 at 4. Many Little Caesars franchisees,
including SFPC, were offering these all day, every day, ready-for-pick-up pizzas
at a low price point one day per week as a customer appreciation day promotion.
Because numerous franchisees were already developing ready-for-pick-up pizza
promotions, Little Caesars began developing a process and system to sell allday, ready-for-pickup pizza every day of the week.
By 2000, many franchisees were offering Hot-N-Ready sales promotions a
few days a week and the concept had grown to the point where Little Caesars
required its franchisees to report weekly Hot-N-Ready sales. In June of 2000,
Little Caesars distributed a Hot-N-Ready Implementation Guide to all of its
franchisees, including SFPC, which explained how to effectively conduct the
Hot-N-Ready promotion. From 2001 to 2003, Little Caesars began
experimenting in some of its company-owned stores by offering ready-for-pickup pizza all day, every day. As a result, Little Caesars had to adjust its recipes,
kitchens, equipment, and staffing needs. In 2002, the Hot-N-Ready operating
system was introduced to all company-owned stores and in 2003 to franchisees.
According to Little Caesars, the “system” determines what franchisees
must prepare on a daily and hourly basis and how to prepare each product.5
5
Dan Walker, the director of training and development for Little Caesars,
stated in his declaration that the “system” consists of “training, operations,
cost and pricing, marketing, inventory process, set-up, lay-out and equipment
used within a Little Caesar restaurant.” Docket 3 ¶ 7.
4
Each franchisee must have a system so it is not guessing what will be sold each
hour because the waste associated with that operation style would not sustain
an all day, every day ready-to-pick-up pizza product. The most important part of
the system, according to Little Caesars, is what product it must prepare on an
hour-by-hour basis. The system would include, for example, how much
pepperoni pizza, cheese pizza, crazy bread, and chicken wings that the
franchisee should prepare during the day and when each component of the
preparation process should occur. The system has a methodology for calculating
specific preparation requirements based on each franchise location. Little
Caesars also claims that the preparation, storing, and cooking of products is
inherent to the system. Little Caesars believes that without the system and the
specifications as to how to let the dough rise, how to apply sauce and toppings,
and how to cook and store the pizza, a restaurant simply could not operate
profitably in an all day, every day ready-for-pickup pizza market.
Following the opening of Pizza Patrol in June of 2012, Little Caesars
personnel visited the store and took photographs of claimed similarities between
Pizza Patrol and Little Caesars. Little Caesars personnel stated that day that
Fischer had not changed or altered the “distinctive” floor and wall tiles, the
location of the ordering counter within the store, the configuration of equipment,
and the general layout that encapsulates Little Caesars’ signature trade dress.
Docket 4 at 3, 8. On June 25, 2012, Little Caesars filed its complaint. Docket 1.
That same day, Little Caesars moved for a temporary restraining order or a
preliminary injunction to prevent SFPC from misappropriating its trade secrets
or violating its trade dress rights. Docket 2.
5
DISCUSSION
“A preliminary injunction is an extraordinary remedy and the burden of
establishing the propriety of an injunction is on the movant.” Roudachevski v.
All-American Care Ctrs., Inc., 648 F.3d 701, 705 (8th Cir. 2011) (citing Watkins,
Inc. v. Lewis, 346 F.3d 841, 844 (8th Cir. 2003)). To determine whether a
preliminary injunction is appropriate the court considers the following factors:
(1)
whether the movant is ‘likely to prevail on the merits’;
(2)
the threat of irreparable harm to the movant;
(3)
the state of balance between this harm and the injury that
granting the injunction will inflict on the other parties litigant;
and
(4)
the public interest.
TCF Nat’l Bank v. Bernanke, 643 F.3d 1158, 1162 (8th Cir. 2011) (citing Planned
Parenthood Minn., N.D., S.D. v. Rounds, 530 F.3d 724, 733 (8th Cir. 2008);
Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 113 (8th Cir. 1981)).
The Dataphase test for preliminary injunctive relief is a flexible analysis.
Hubbard Feeds, Inc. v. Animal Feed Supplement, Inc., 182 F.3d 598, 601 (8th Cir.
1999). No single Dataphase factor is dispositive, but the preliminary injunction
fails without a showing of the threat of irreparable harm by the plaintiff.
Dataphase, 640 F.2d at 114 n.8; United Indus. Corp. v. Clorox Co., 140 F.3d
1175, 1179 (8th Cir. 1998).
6
I.
Likelihood of Success on the Merits
“The most important of the Dataphase factors is the . . . likelihood of
success on the merits.” Shrink Mo. Gov’t PAC v. Adams, 151 F.3d 763, 764 (8th
Cir. 1998). The litigant bringing the claim need not show that he or she will
ultimately win the case, rather, “at the early stage of a preliminary injunction
motion, the speculative nature of this particular inquiry militates against any
wooden or mathematical application of the test.” United Indus. Corp., 140 F.3d
at 1179. A court should instead “weigh the case’s particular circumstances to
determine whether the balance of equities so favors the movant that justice
requires the court to intervene to preserve the status quo until the merits are
determined.” Id. (internal citations and quotations omitted). “Probability of
success on the merits” in this context means that the moving party must show
it has “a ‘fair chance’ of success on the merits[.]” Planned Parenthood, 530 F.3d
at 731. A “fair chance of prevailing” does not mean a greater than 50 percent
likelihood of prevailing on the merits of the claim. See id. at 731 (citing
Dataphase, 640 F.2d at 113). Little Caesars bears the burden of showing that it
has a fair chance of proving that defendants misappropriated its trade secrets
and violated its trade dress rights.
A.
Trade Secret
Little Caesars argues that its system for preparing and selling ready-forpick-up, whole pizzas in a competitive fashion is the type of information that is
protected under the South Dakota Trade Secrets Act, and its system was
misappropriated by SFPC. SFPC claims that it did not misappropriate this
information because SFPC has gone to great lengths to distance itself from Little
7
Caesars to make Pizza Patrol a completely distinct business. SFPC also
contends that Little Caesars’ alleged trade secret was not expressed with
sufficient detail. It is the sort of information that is generally known to those in
the restaurant industry; therefore, there can be no misappropriation of it.
Under the South Dakota Uniform Trade Secrets Act, individuals can be
enjoined from actual or threatened misappropriation of a trade secret. SDCL 3729-2. In South Dakota, a “trade secret” is “information, including a formula,
pattern, compilation, program, device, method, technique or process” that:
(i)
Derives independent economic value, actual or potential, from
not being generally known to, and not being readily
ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use; and
(ii)
Is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
SDCL 37-29-1(4). “The burden is upon [Little Caesars] to show the existence of a
trade secret.” Weins v. Sporleder, 569 N.W.2d 16, 20 (S.D. 1997) (citations
omitted). Misappropriation can either be:
(i)
Acquisition of a trade secret of another by a person who
knows or has reason to know that the trade secret was
acquired by improper means; or
(ii)
Disclosure or use of a trade secret of another without express
or implied consent by a person who:
(A)
Used improper means to acquire knowledge of the
trade secret; or
(B)
At the time of disclosure or use, knew or had
reason to know that such knowledge of the trade
secret was: (I) Derived from or through a person
who had utilized improper means to acquire it;
8
(II) acquired under circumstances giving rise to a
duty to maintain its secrecy or limit its use; or
(III) Derived from or through a person who owed a
duty to the person seeking relief to maintain its
secrecy or limit its use; or
(C)
Before a material change of position, knew or had
reason to know that it was a trade secret and that
knowledge of it had been acquired by accident or
mistake[.]
SDCL 37-29-1(2).
“ ‘Without a proven trade secret, there can be no action for
misappropriation, even if defendants’ actions were wrongful.’ ” Daktronics, Inc. v.
McAfee, 599 N.W.2d 358, 361 (S.D. 1999) (quoting 10 Stuart M. Speiser, et al.,
The American Law of Torts § 34:23 at 89 (1993)). “An injunction is inappropriate
if plaintiff fails to identify specific trade secrets and instead produces long lists
of general areas of information which contain unidentified trade secrets.”
Watkins, Inc. v. Lewis, Civ. No. 02-3708, 2002 WL 31319491, at *13 (D. Minn.
Oct. 11, 2002) (citation omitted). “General knowledge within an industry does
not constitute trade secrets.” Int’l Bus. Mach. Corp. v. Seagate Tech., Inc., 941 F.
Supp. 98, 101 (D. Minn. 1992) (citation omitted).
The court first must decide if the system is the type of information that
could constitute a trade secret and specifically whether it derives independent
economic value and whether there were reasonable methods to protect that
information’s secrecy from others. If both factors are established, then the court
must examine whether SFPC misappropriated that information in violation of
South Dakota law.
9
Little Caesars has come forward with minimal proof that its system in
producing Hot-N-Ready pizza could be the type of information that is a method,
technique, process, or program under a broad view of the definition of trade
secret. The most specific information given to the court by Little Caesars about
the system is that its “calculations specify how many pepperoni pizzas, cheese
pizzas, crazy bread and chicken wings the franchisee should prepare and when
each component of the preparation process should occur.” Docket 4 at 5. The
system also includes that the pizza dough is specially prepared, specially stored,
and allowed to rise for a specific period of time. Then the sauce and toppings
have to be applied in a special way and cooked for a specific amount of time.6
Finally, the finished product must be stored in accordance with the specifics of
the system.7 Docket 4 at 5. Little Caesars also stated during oral argument that
it believed the trade secret is the process of profitably or successfully selling an
all day, every day ready-for-pick-up pizza at a low price point. Later when
pressed, Little Caesars argued that the protectable trade secret also included
the “projection” or “build-to” charts and other internal proprietary documents
within the system that helped franchisees determine their expected flow of
traffic and otherwise predict business patterns.
6
Little Caesars did not offer evidence of how the toppings should be applied
to the pizzas or how the product should be cooked to make the process adhere
to the standards of the Hot-N-Ready system.
7
Little Caesars did not submit direct evidence of how pizza should be stored
according to the system.
10
1.
Independent Economic Value
Most pertinent to the South Dakota statutory definition of trade secret is
that Little Caesars must make a showing that the information within its system
was not generally known and has independent economic value. While Little
Caesars’ explanations of what the system is could constitute “information”
because it is a process, formula, method, or technique, Little Caesars was not
specific enough to meet the high burden of likelihood of success on the merits
for a preliminary injunction analysis.
First, Little Caesars did not make a clear showing of, and the court could
not discern, specifically which information within Little Caesars’ system is “not
generally known.” See Weins, 569 N.W.2d at 20 (stating that “there was never a
clear assertion as to what exactly was claimed to be the trade secret.”). General
references to preparation, timing, and amounts of food per hour to minimize
waste is not specific enough to constitute a trade secret and would not classify
as being “not generally known.” Little Caesars has brought forth evidence that
its system has economic value8 because its business is successful and it claims
8
Little Caesars argues that there has to be economic value in its alleged
trade secret system because SFPC has experienced success operating an all
day, everyday ready-made pizza restaurant while other national chains with
significant funding have failed in the past. Docket 4 at 9. First, Little Caesars
has not established that national chains have tried their exact business model
and failed. Little Caesars only made bald assertions that CiCi’s Pizza, Pizza
Patron, and others “tried to compete” with Little Caesars and failed. Second,
Little Caesars has brought forth no factual support that SFPC has
“miraculously [experienced success] in their first week of operations.” Docket 4
at 9. In fact, Fischer testified that sales are declining and that SFPC is making
significantly less profit as an independent store than it did as a Little Caesars
franchisee. This evidence is not “concrete” evidence that Little Caesars’ system
has independent economic value that is not generally known nor is it evidence
11
to have a substantial market share of the carryout pizza industry. Little Caesars
has not distinguished, however, how that system has brought them specific
economic value above and beyond the generic knowledge of how to run a
restaurant that provides ready-made pizza.
Little Caesars did not put on any evidence that SFPC was using any type
of computer software, complex manufacturing process, or otherwise unique,
secret, or complicated system while prepping, making, and selling all day, every
day, ready-made pizza. See Paint Brush Corp. v. Neu, 599 N.W.2d 384, 390 (S.D.
1999) (noting specific components of a manufacturing process that were secret
and unique to the industry when undertaking a determination as to whether the
process was a trade secret). Although Little Caesars discussed its projection
charts or graphs within its system at length during the hearing for preliminary
relief, Little Caesars never entered these documents into evidence. The court has
not seen the charts or the projections that Little Caesars claims is so valuable or
integral to its system. Nor did Little Caesars put on any evidence of tangible
items or objects that Little Caesars developed that it could prove SFPC was
misusing to operate Pizza Patrol. Little Caesars’ description of what makes up its
system is too generic or general to amount to a trade secret under the evidence
presented at this stage of the litigation.
that Little Caesars will succeed on the merits of its claims.
12
Moreover, the evidence presented in the hearing demonstrated that Pizza
Patrol proofed9 or sheeted out its dough, let it rise in the pan, spread on sauce,
cheese, and toppings, baked the pizza, and put it under a heat lamp in
preparation for sale. Dan Walker’s testimony that he observed Pizza Patrol
employees sheeting or proofing its crust in the same manner as Little Caesars10
is not sufficient proof of misappropriation because there was evidence that many
proprietors of pizza restaurants11 prepare their dough in the same manner. At
this stage in the litigation, Little Caesars only presented evidence that its system
is a general or common sense way of preparing and making pizza or that
defendants were doing nothing more than what every other pizza proprietor in
the restaurant business accomplishes. See Daktronics, 599 N.W.2d at 362 (“The
first subsection [of SDCL 37-39-1(4)] requires there to be economic value that is
not readily ascertainable by other means” and “this requirement precludes trade
secret protection for information generally known within an industry even if not
to the public at large.”) (internal quotations and citations omitted). See also
9
The general usage of this term means that the dough was sheeted out or
cut to size, and the yeast was allowed to rise.
10
While Little Caesars claims that SFPC misappropriated its complex
projection charts and data to anticipate customer traffic, SFPC asserts that it
does not use a complex system to determine what food to have on hand for
pick-up and when to have it ready. SFPC stated that it has a few pizzas ready
around lunch or dinner time and as a pizza is sold the restaurant preps and
cooks additional pizza.
11
Fischer stated during his direct testimony that he knows of hundreds of
pizza restaurants who proof their pizza in this manner, including his own
direct knowledge that this was the proofing process used by Pizza Hut during
his nine-year tenure there.
13
Watkins, Inc., 2002 WL 31319491, at *13 (“An injunction is inappropriate if
plaintiff fails to identify specific trade secrets and instead produces long lists of
general areas of information which contain unidentified trade secrets.”) (citation
omitted).
Additionally, neither party disputes that SFPC was creating a completely
distinct product at Pizza Patrol than it made as a Little Caesars franchisee even
though both finished products are all day, every day whole pizzas that are ready
for pick-up. There was testimony that the dough was different, the sauce and
cheese were different, and the toppings were different. Little Caesars admitted
that it did not believe that SFPC was creating a similar final product with its
ready-made pizzas. See Weins, 569 N.W.2d at 24 (“[Plaintiff] has not shown that
[defendants] actually used the formula” and “[s]ince [defendants’] end product
was at least somewhat different from [plaintiff’s] product, it is clear that
independent thought was used to obtain the result.”). Although Little Caesars
cannot show that its system derives independent economic value, the court will
also analyze the second statutory factor of what constitutes a trade secret
because Little Caesars also cannot clearly establish that factor.
2.
Reasonable Efforts to Maintain Secrecy
The second factor in a misappropriation analysis is whether Little Caesars
established reasonable efforts to maintain the secrecy of its system. “Reasonable
efforts to maintain secrecy need not be overly extravagant, and absolute secrecy
is not required.” AvidAir Helicopter Supply, Inc. v. Rolls-Royce Corp., 663 F.3d
966, 974 (8th Cir. 2011); see also Raven Indus., Inc. v. Lee, 783 N.W.2d 844, 850
(S.D. 2010) (“Under the UTSA [Uniform Trade Secret Act], absolute secrecy . . . is
14
not required.”). “The UTSA only requires reasonable efforts to keep secret,
confidential, or proprietary information from general dissemination.” Raven, 783
N.W.2d at 850.
Little Caesars took some steps to safeguard its proprietary information by
forcing all franchisees to sign confidentiality agreements about the system and
Little Caesars’ business practices, but that confidentiality did not extend to all
employees with direct exposure to the system. In SFPC’s franchise agreement
with Little Caesars it “covenant[ed] that it shall never, under any circumstances,
disclose to any unauthorized party, or use in any other than the best interest of
the Little Caesars System, any of the trade secrets or confidential information of
Little Caeser licensed herein or divulged to, or acquired by it by virtue of the
relationship between the parties.” Docket 1 ¶ 28. The franchise agreement12 also
required that franchisees admit that any improvements made to the system,
including improvements developed by that franchisee, are property of Little
Caesars. Little Caesars also claimed that any material in the Operational
12
Paragraph V.F of the Franchise Agreement provides:
Any and all improvements or modifications in the LITTLE CAESAR
system, franchise trade secrets, or know-how licensed hereunder
whether made by LITTLE CAESAR or Franchise Owner or by
another LITTLE CAESAR licensee, shall be and become the sole
property of LITTLE CAESAR which shall have the sole and
exclusive right to patent, copyright, register, or otherwise protect
the same . . . .
Docket 4 at 7.
15
Resource Guide13 is protected because the word “confidential” is on the cover
and repeated on some pages within the manual. Docket 4 at 7.
Although the franchisees were those charged with upholding the Little
Caesars brand and implementing any terms of the franchise agreement, it was
the employees of Little Caesars who actually prepared and completed each step
in the system. Those employees prepared the dough, applied toppings, baked
the product, sold it to customers, and determined when product was no longer
fresh enough to keep. Thus, those with the most detailed knowledge of Little
Caesars’ system were people who had no duty or promise to keep that
information confidential because they were not required to sign confidentiality
agreements and did not have access to the “confidentially” marked operations
guide. Cf. Paint Brush Corp., 599 N.W.2d at 390 (noting that the manufacturer
“required all of their own employees to sign a document entitled ‘Employment
Agreement (Trade Secrets and Restrictive Covenant)’ ” that discusses trade
secrets and confidential information). For that reason and on the evidence
presented at this stage of the litigation, Little Caesars cannot show that the
system “[i]s the subject of efforts that are reasonable under the circumstances to
maintain its secrecy.”
Like the plaintiffs in Daktronics or Weins, Little Caesars has not brought
forth any evidence that its system is any more than a conglomeration of
information that was already in the public knowledge and aggregated by Little
13
Little Caesars did not offer its Operational Resource Guide into evidence,
so the court is not able to tell how prominent the word confidential was or
upon how many pages the word appeared throughout the guide.
16
Caesars into what it calls its system. Little Caesars did not establish through
the evidence its position on what specifically was its trade secret, and the little
information Little Caesars did provide appears to be a common method for
making pizza generally known in the restaurant business. Without more proof at
this stage of the litigation, Little Caesars cannot sustain its burden of showing
that it is likely to succeed on the merits of its claim. Because the court has
determined that Little Caesars has not offered sufficient evidence that the
“system” in question is a trade secret with independent economic value or
established its reasonable efforts to maintain its secrecy, the court does not
have to analyze whether SFPC misappropriated that information. See
Daktronics, 599 N.W.2d at 361 (“Without a proven trade secret, there can be no
action for misappropriation, even if defendants’ actions were wrongful.”).
B.
Trade Dress
Little Caesars claims that SFPC has failed to alter the trade dress of Pizza
Patrol to remove the distinctive features or dress of the store that are unique to
or associated with Little Caesars, which infringes upon Little Caesars’ trade
dress rights. SFPC argues that it has worked to remodel the interior and exterior
of the store after its franchise agreement expired, and an injunction is not
necessary because the claim became moot by defendants’ own voluntary
conduct.
Section 43(a) of the Lanham Act gives litigants a federal cause of action
when trade dress rights are infringed upon. Insty*Bit, Inc. v. Poly-Tech Indus.,
Inc., 95 F.3d 663, 667 (8th Cir. 1996). “Trade dress is the ‘total image of a
product, the overall impression created, not the individual features.’ ”
17
Aromatique, Inc. v. Gold Seal, Inc., 28 F.3d 863, 868 (8th Cir. 1994) (quoting
Woodsmith Publ’g Co. v. Meredith Corp., 904 F.2d 1244, 1247 (8th Cir. 1990)). A
company’s style and method of doing business cannot be protected under trade
dress nor can it protect one business from imitating another’s marking concept.
Prufrock Ltd., Inc. v. Lasater, 781 F.2d 129, 131-32 (8th Cir. 1986). To obtain
relief for trade dress infringement, the plaintiff must show that: “(1) its trade
dress is either inherently distinctive or has acquired secondary meaning; (2) that
the trade dress is nonfunctional; and (3) that defendant’s imitation of the trade
dress ‘creates a likelihood of confusion in consumers’ minds as to the origin of
the services.’ ” Stuart Hall Co., Inc. v. Ampad Corp., 51 F.3d 780, 783 (8th Cir.
1995) (quoting Prufrock, 781 F.2d at 132; Two Pesos, Inc. v. Taco Cabana, Inc.,
505 U.S. 763, 769 (1992)).
SFPC stated that after the Little Caesars franchise closed on June 3 and
before it opened again on June 4 as Pizza Patrol, Fischer removed all of Little
Caesars’ signs, point of purchase materials, menu boards, paper goods, and
other marks from the location on 10th St. and Cliff Ave. Docket 20 at 2. Fischer
also noted that any leftover Little Caesars food products were removed from the
store and sold to a new franchisee. Following June 4, Fischer said that he
remodeled the exterior and interior of the store to alter it from Little Caesars to a
Pizza Patrol. Specifically, SFPC changed the entryway and lobby tile, the wall
stripes, the exterior color stripes around the building, the menu boards and
front counter, and any other elements that could be associated with Little
Caesars’ trade dress. Little Caesars expressed concern that the arch on the
exterior of the building was associated with Little Caesars, but the evidence
18
shows that SFPC has now had the arch altered by a contractor. SFPC also put
up exterior and interior Pizza Patrol signs and claims that it has actively
advertised to customers and the general public that it is a new business without
ties to Little Caesars. Docket 20 at 2.
The court need not analyze the three factors necessary to prove an
infringement of trade dress rights because Little Caesars offered no evidence of
specific trade dress requirements mandated by Little Caesars that were either
typical or required in each company-owner store or franchise. Little Caesars
submitted no evidence to the court of a written policy, manual, guide, or other
direct proof of Little Caesars’ standard trade dress. All that was offered was the
testimony of Dan Walker, who testified that the Pizza Patrol store looked similar
to a Little Caesars franchise at 10th and Cliff as it existed prior to June 4.
Evidence that some features of the current Pizza Patrol are still similar to the
look and feel of the store when it was a Little Caesars is not enough to establish
that Little Caesars has a fair chance of succeeding on its trade dress
infringement claim.
The parties were left to argue about the wall and floor tile color, the layout
of the store, and other minute details. Walker testified that the black and white
tile pattern in Pizza Patrol was associated with Little Caesars trade dress;
however, Little Caesars offered no proof whatsoever that the black and white tile
is a scheme or pattern that is clearly associated with Little Caesars. Little
Caesars also claimed that the floor tiling that SFPC changed from yellow and
black to red and black was not a substantial enough change from Little Caesars’
standard tiling and would confuse customers. Little Caesars did not establish
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through the evidence that the black and yellow tile was closely identified with
Little Caesars, let alone that SFPC’s current tile continued to infringe upon Little
Caesars’ trade dress rights. Additionally, Little Caesars admitted that it never
found a napkin, pizza box, sign, or anything else with distinctive marks or
proven dress that could be legitimate evidence of a trade dress violation.
Without more at this stage of the litigation, Little Caesars’ trade dress claim is
not likely to succeed on the merits.
After analyzing Little Caesars’ claims of both misappropriation of trade
secrets and infringement of trade dress rights, the court finds that at this stage
of the litigation Little Caesars has not carried its burden to show that it is likely
to prevail on the merits of its claims. See Gen. Motors. Corp. v. Harry Brown’s,
LLC, 563 F.3d 312, 316 (8th Cir. 2009) (citing Watkins, 346 F.3d at 844) (“The
party seeking a preliminary injunction bears the burden of establishing the
necessity of this equitable remedy.”). This factor weighs in favor of denying the
request for a preliminary injunction. See CDI Energy Servs. v. W. River Pumps,
Inc., 567 F.3d 398, 402 (8th Cir. 2009) (“With no likelihood of success on the
merits, there is little justification for granting a preliminary injunction regarding
the trade-secret claim.”).
II.
Threat of Irreparable Harm
The other key factor that a movant must always prove under Dataphase is
that “he is likely to suffer irreparable harm in the absence of preliminary
relief[.]” Winter v. Natural Res. Defense Council, Inc., 555 U.S. 7, 20 (2008)
(citations omitted). “ ‘Irreparable harm occurs when a party has no adequate
remedy at law, typically because its injuries cannot be fully compensated
20
through an award of damages.’ ” Rogers Group, Inc. v. City of Fayetteville, Ark.,
629 F.3d 784, 789 (8th Cir. 2010) (quoting General Motors Corp., 563 F.3d at
319). If a party can establish that “the harm is certain and great and of such
imminence that there is a clear and present need for equitable relief[,]” then
irreparable harm is shown. Iowa Utils. Bd. v. F.C.C., 109 F.3d 418, 425 (8th Cir.
1996).
The potential of losing consumer good will qualifies as irreparable harm.
Id. at 426. A future or potential fear of harm is not enough, and plaintiff “must
make a showing of actual, substantial harm from the alleged infringement.”
Travelers Express Co. v. Transaction Tracking Techs., Inc., 305 F. Supp. 2d 1090,
1095 (D. Minn. 2003); see also In re Travel Agency Comm’n Antitrust Litig., 898 F.
Supp. 685, 689 (D. Minn. 1995) (“[A]n injunction cannot issue based on
imagined consequences of an alleged wrong.”). “Failure to show irreparable
harm is an independently sufficient ground upon to deny a preliminary
injunction.” Watkins Inc., 346 F.3d at 844.
Little Caesars asserts that it suffers irreparable harm each day SFPC
operates a similar business that looks like Little Caesars and sells all day, every
day ready-for-pick-up pizza using Little Caesars’ trade secret system. The threat
of injury to Little Caesars’ goodwill and business relationships with its
customers is a cognizable harm. Iowa Utils. Bd.,109 F.3d at 426. The threat of a
trade secret misappropriation can also be a threat of irreparable harm and is
sufficient in this case for Little Caesars to carry its burden on this factor. See
Uncle B’s Bakery, Inc. v. O’Rourke, 920 F. Supp. 1405, 1434-46 (N.D. Iowa 1996)
(concluding there was a threat of irreparable harm when former employee went
21
to work for competitor and there was a threatened trade secret misappropriation
claim). For this reason, the court finds that the irreparable harm factor weighs
in favor of granting Little Caesars’ request for a preliminary injunction.
III.
Balance of Harms
The third factor the court considers in deciding whether to issue a
preliminary injunction is the balance between the possible harm to Little
Caesars and the injury that an injunction could inflict on other interested
parties. This element asks whether “the harm to the moving party outweighs the
financial loss and damage to the reputation of the nonmoving party.” Aveda
Corp. v. Evita Mktg., Inc., 706 F. Supp. 1419, 1431 (D. Minn. 1989) (citation
omitted).
Little Caesars argues that the harm to SFPC is minimal because it would
still be able to operate its business within the broad confines of the proposed
injunction as a delivery and dine-in restaurant— it just could not use the “HotN-Ready” style of doing business. Comparatively, Little Caesars claims that it
would suffer considerable harm because it endures more damage each day that
SFPC misappropriates its trade secrets. SFPC contends that unlike Little
Caesars, which operates over 3,000 locations across the world, SFPC only has
one store that would be severely harmed through the imposition of an
injunction. Docket 19 at 11. SFPC claims that if it is forced to scale back its
menu it will sustain serious losses. Fischer testified that his ready-made pizza
accounts for roughly half of his business at Pizza Patrol, and business has been
steadily declining since he changed the store from Little Caesars to Pizza Patrol.
Fischer states that he is unlikely to stay in business if the court enjoins SFPC
22
from selling this type of product. The court finds that the harm to both parties
would be substantial, but the harm to SFPC’s lone business would be greater
than the harm to a national business like Little Caesars. For that reason, this
factor weighs slightly in favor of denying the preliminary injunction request.
IV.
Public Interest
The final Dataphase factor that this court must consider is the public’s
interest in the litigation. There is a public interest in protecting a company’s
property interest in its trade dress or secrets, but the public also has an interest
in unrestrained competition and a free market economy. See Calvin Klein
Cosmetics Corp. v. Lenox Labs., 815 F.2d 500, 505 (8th Cir. 1987). In this case,
because the court concluded that Little Caesars’ likelihood of success on its
claims is low, the public interest would tip slightly towards unrestrained
competition. This factor also weighs in favor of denying the preliminary
injunction.
Although Little Caesars demonstrated that it was likely to sustain
irreparable harm absent a preliminary injunction, the court finds after
balancing the four Dataphase factors that equity does not require preliminary
relief, and it is unwarranted in this case. Most notable to the court’s conclusion
was that Little Caesars was unable to carry its burden to bring forth sufficient
evidence to show that it is likely to succeed on the merits of its claims. See CDI
Energy Servs., 567 F.3d at 402 (“With no likelihood of success on the merits,
there is little justification for granting a preliminary injunction regarding the
trade-secret claim.”).
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CONCLUSION
The court determined, after weighing the Dataphase factors, that a
preliminary injunction is not appropriate in this case. While Little Caesars could
demonstrate that it was likely to suffer irreparable harm, Little Caesars did not
carry its burden of showing that it is likely to succeed on the merits of its claims
because it failed at this stage of the litigation to demonstrate through the
evidence that its system is a protectable trade secret. Little Caesars also failed to
show that SFPC was violating its trade dress rights because Little Caesars did
not present any evidence of its typical or required dress and did not provide
specific proof that SFPC infringed upon its trade dress rights. Accordingly, it is
ORDERED that Little Caesars’ motion for a temporary restraining order or
preliminary injunction (Docket 2) is denied.
Dated August 3, 2012.
BY THE COURT:
/s/ Karen E. Schreier
KAREN E. SCHREIER
CHIEF JUDGE
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