Choice Hotels International, Inc. v. Patel et al.
Filing
52
MEMORANDUM AND ORDER granting in part denying in part 29 MOTION for Summary Judgment ; denying 37 Opposed MOTION to Strike 29 MOTION for Summary Judgment ; denying as moot 38 MOTION for Temporary Restraining Order; granting 44 MOTION Reques t for Judicial Notice of Other Proceedings, granting 46 Amended MOTION Request for Judicial Notice of Other Proceedings, granting 51 Supplemental MOTION First Amended Request for Judicial Notice of Other Proceedings, (Signed by Judge Gregg Costa) Parties notified.(arrivera, )
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
VICTORIA DIVISION
CHOICE HOTELS INTERNATIONAL, §
INC.,
§
§
Plaintiff,
§
VS.
§
§
VINODBHAI PATEL, et al,
§
§
§
Defendants.
CIVIL ACTION NO. 6:12-CV-00023
MEMORANDUM AND ORDER
Plaintiff Choice Hotels International, Inc. brings this action against two
former franchisees—Defendants Mrs. Ilaben and Mr. Vinodbhai Patel—for
continuing to use Comfort Inn trademarks after the parties’ franchise agreement
terminated on April 8, 2009. Choice Hotels now argues that it is entitled to
summary judgment, both on liability and for treble damages, because the Patels
waited over two years after the termination of the franchise agreement to remove
the Comfort Inn marks from signs outside the hotel, the hotel’s credit card receipts,
and the hotel’s Wi-Fi connection service.
Having reviewed the parties’ briefs and submissions and the applicable law,
the Court GRANTS IN PART and DENIES IN PART Choice Hotel’s motion.
Summary judgment on Mr. Patel’s liability is warranted: the evidence shows that
there is no genuine dispute that Choice Hotels had a legally protected interest in
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the marks; that Mr. Patel used the marks in commerce without the consent of
Choice Hotels; and that such usage was likely to cause confusion. However, fact
issues still remain about Mrs. Patel’s involvement in the infringement and whether
the Patels’ conduct warrants the monetary damages that Choice Hotels seeks.
I.
BACKGROUND
Choice Hotels is a hotel franchisor, known for its line of roadside value
hotels, including Comfort Inn, Econo Lodge, Cambria Suites, and Rodeway Inn.
Figure 1: Choice Hotels’ brands as depicted on its website. Choice Hotels: Our Brands,
http://www.choicehotels.com/en/about-choice/ourbrands (last visited April 10, 2013).
Its formal relationship with the Patels began on April 2, 1993, when the parties
entered into a franchise agreement. In broad terms, the agreement permitted the
Patels to operate a Comfort Inn franchise at 1906 Houston Highway, Victoria,
Texas 77901, in exchange for royalties and other fees. See Docket Entry No. 5-3
at 2–19. The agreement licensed Comfort family marks to the Patels, but allowed
Choice Hotels to revoke those licenses upon termination of the agreement. Id. at 5,
9. The agreement provided a number of reasons for which Choice Hotels could
terminate the franchise, including an option to terminate without cause and as a
matter of right on the fifteenth anniversary of the “commencement date.” Id. at 3.
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Choice Hotels chose to exercise that option and sent a letter to the Patels on
January 16, 2008 notifying them “of Choice’s election to terminate on the 15th
anniversary of the Commencement Date, the COMFORT INN franchise agreement
and addendum . . . on April 8, 2009.” Docket Entry No. 29-12 at 13 (emphasis in
original). The termination notice also stated that the Patels’ “use of Choice’s
proprietary marks, including, but not limited to, the trade name and service mark
COMFORT INN®, must cease no later than April 8, 2009” in order not to infringe
Choice’s trademarks. Id. (emphasis in original).
The notice also included a
nonexhaustive checklist of 37 items containing Choice’s trademarks that needed to
be removed. Docket Entry No. 29-13 at 2. Choice Hotels sent subsequent ceaseand-desist letters on April 27, 2010 and May 23, 2011, which specifically
addressed the use of the marks on the signs. See Docket Entry Nos. 29-13 at 11;
29-14 at 10.
According to Mr. Patel and his premises manager, Mukesh Chandra, in or
around April 2009, extensive efforts were made to remove the Comfort Inn name
or marks from the subject hotel. See Docket Entry Nos. 36-2 at 6; 36-3 at 4. They
testified that they removed and destroyed the Comfort-marked lobby displays,
owner’s plaque, stationery, shower curtains, fire evacuation cards, soap and
amenity packages, in-room organizers, cups and glasses, ice buckets, guest service
directories, phone plates and info caddies, waste baskets, sanitary bags, and
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sanitary toilet strips. Docket Entry Nos. 36-3 at 4–5; 29-17 at 22–23. They also
testified to painting over the “guest room door signage,” changing the way they
answered the phones, and not renewing the yellow pages advertisements. Docket
Entry Nos. 36-3 at 4–5; 36-2 at 6. And, in May 2009, Mr. Patel filed new assumed
name documents with the Victoria County Clerk’s office, changing the hotel’s
name to “Crossroads Inn” or “Cameron Inn.” Docket Entry No. 36-2 at 6, 58–59.
On the other hand, Mr. Patel admits that he did not initially remove or paint
over exterior Comfort Inn signs—including a 30-foot street sign and smaller
entrance and exit signs—allegedly because he planned to use them at a new
Comfort Inn to be built elsewhere in Victoria pursuant to a separate franchise
agreement. Docket Entry No. 36 at 5. Mr. Patel purportedly hired someone to
cover the signs with tarps sometime before June 29, 2009, but as photographs
provided by Choice Hotels show, the tarps sagged off, or flew off entirely, from
the signs on numerous occasions. See Docket Entry Nos. 36-5 at 3–5; 29-20 at 7–
9. A May 2011 e-mail from a different Choice franchisee states that the poorly
secured tarp would come down every few weeks causing the main sign to be
visible for weeks or months thereafter, and that the entrance and exit signs never
had any covering. Docket Entry No. 29-14 at 5.1 Eventually, sometime on or
1
Plaintiffs object to the James F. Downy, III affidavit and its attached exhibits—which include
the May 2011 e-mail—on authentication grounds because the affidavit was not signed. Docket
Entry No. 37 at 4–5. The Court overrules this objection with respect to the cited exhibit, because
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around November 11, 2011, Mr. Patel had the exterior signs painted black. See
Docket Entry No. 42-2 at 15.
Figure 2: Photographs of exposed signage at the subject property. The daytime photographs
were taken on or about August 23, 2010; the nighttime photograph of the exit sign was taken on
or about October 16, 2011. Docket Entry Nos. 29-3 ¶ 6; 29-13 at 14; 29-14 at 2–3; 5 at 11; 5-3
at 22.
In addition to the signs, the Comfort marks continued to be used in at least
two other ways after the termination of the franchise agreement. Namely, the
hotel’s credit card receipts still bore the Comfort Inn name and the hotel’s wireless
service directed users to a website that displayed a “Welcome to the Comfort Inn”
greeting. According to Mr. Patel, after his deposition he corrected the credit card
receipt situation on or around February 15, 2013, and the Wi-Fi situation on or
around March 6, 2013. See Docket Entry Nos. 49 at 4; 36-2 at 6–7; 49-1.
Choice Hotels also presents evidence that consumers mistook the hotel for a
the signed Stuart M. Kreindler affidavit authenticated the e-mail. Docket Entry No. 29-1 ¶ 12.
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Comfort Inn after the franchise agreement had ended. For instance, a guest who
stayed at the hotel in July 2009 logged a complaint “regarding my stay at Comfort
Inn,” implying that the “dirt,” “grime,” and “insects” in his room ran counter to the
“company advertisements about clean rooms.” Docket Entry No. 29-13 at 6–7.
Another guest complained in March 2010 that he was not able to earn Choice’s
guest rewards points after staying at the hotel for 18 nights. Id. at 9.2
While there is no evidence showing that the Patels continue to use Comfort
marks, Choice Hotels requests a permanent injunction to prevent any further harm
and monetary damages to compensate its brand’s damaged goodwill.
II.
SUMMARY JUDGMENT STANDARD
When a party moves for summary judgment, the reviewing court shall grant
the motion “if the movant shows that there is no genuine dispute as to any material
fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). A dispute about a material fact is genuine “if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). All reasonable doubts on questions
2
Plaintiffs object to Choice Hotels’ consumer-complaint exhibits on hearsay grounds. See
Docket Entry No. 37 at 4. The Court overrules the objection to the extent the evidence shows
consumer confusion, but sustains the objection in so far as Choice Hotels seeks to establish the
truth of the underlying statements. The mere fact that complaints were submitted to Choice
Hotels concerning the Victoria property supports the confusion point without a need to establish
the truth of the complaint—that the customers had a bad experience. The Court also notes that
while the log of complaints may satisfy the hearsay exception for business records, the
underlying statements constitute hearsay within hearsay. See Wilson v. Zapata Off-Shore Co.,
939 F.2d 260, 271 (5th Cir. 1991) (citations omitted).
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of fact must be resolved in favor of the party opposing summary judgment. See
Evans v. City of Houston, 246 F.3d 344, 348 (5th Cir. 2001) (citation omitted).
III.
LIABILITY
Choice Hotels seeks rulings of joint and several liability on all four causes of
action it brings against the Patels: trademark infringement under the Lanham Act
(15 U.S.C. § 1114); false designation of origin under the Lanham Act (15 U.S.C.
§ 1125); trademark infringement under Texas common law; and unfair competition
under Texas common law. Docket Entry No. 29 at 13. Nevertheless, the Court
must only conduct one inquiry to determine the Patels’ liability because, as the
parties appear to agree, the facts that support an action for trademark infringement
under the Lanham Act also support the other three actions. See Philip Morris USA
Inc. v. Lee, 547 F. Supp. 2d 667, 674 (W.D. Tex. 2008) (“The elements of
trademark infringement and false designation of origin are identical, and the same
evidence will establish both claims.” (citations omitted)); Dallas Cowboys
Football Club, Ltd. v. Am.’s Team Props., Inc., 616 F. Supp. 2d 622, 637 (N.D.
Tex. 2009) (“A determination of a likelihood of confusion under federal law is
sufficient to prove trademark infringement under Texas law.” (citing Elvis Presley
Enters. v. Capece, 141 F.3d 188, 193 (5th Cir. 1998)); Horseshoe Bay Resort Sales
Co. v. Lake Lyndon B. Johnson Improvement Corp., 53 S.W.3d 799, 806 n.3 (Tex.
App.—Austin 2001, pet. denied) (“A trademark infringement and unfair
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competition action under Texas common law presents essentially ‘no difference in
issues than those under federal trademark infringement actions.’” (quoting Zapata
Corp. v. Zapata Trading Int’l, Inc., 841 S.W.2d 45, 47 (Tex. App.—Houston [14th
Dist.] 1992, no writ)).
A. Infringement of the Comfort Marks
“To recover on a claim of trademark infringement, a plaintiff must first show
that the mark is legally protectable and must then establish infringement by
showing a likelihood of confusion.” Am. Rice, Inc. v. Producers Rice Mill, Inc.,
518 F.3d 321, 329 (5th Cir. 2008) (citations omitted). A cause of action for
infringement exists where a person “uses (1) any reproduction, counterfeit, copy[,]
or colorable imitation of a mark; (2) without the registrant’s consent; (3) in
commerce; (4) in connection with the sale, offering for sale, distribution[,] or
advertising of any goods; (5) where such use is likely to cause confusion, or to
cause mistake or to deceive.” Id. (alterations in original) (quoting Boston Prof’l
Hockey Ass’n, Inc. v. Dallas Cap & Emblem Mfg., Inc., 510 F.2d 1004, 1009–10
(5th Cir. 1975)).
Because Choice Hotels must establish liability for each
Defendant individually, see infra pages 14–15, the Court first analyzes the grounds
for liability against Mr. Patel with a subsequent analysis of Mrs. Patel’s conduct.
1. Ownership of Trademark
Choice Hotels must first establish ownership of a legally protected mark.
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Proof of registration of a service mark or trademark with the United States Patent
and Trademark Office is prima facie evidence of the registrant’s exclusive right to
use the mark in commerce for the services specified in the registration. Elvis
Presley Enters., 141 F.3d at 194 (citing 15 U.S.C. § 1115(a)); see also Coach Inc.
v. Sassy Couture, No. SA-10-CV-601-XR, 2012 WL 162366, at *4 (W.D. Tex.
Jan. 19, 2012) (“Except in certain limited circumstances, ownership of a
protectable mark is proven where a mark is federally registered and has become
‘incontestable’ under §§ 1058 and 1065.” (citation omitted)).
Choice Hotels has produced uncontested evidence that the marks at issue are
registered. Docket Entry Nos. 5-1, 5-2. And the Patels have admitted that Choice
Hotels owns the marks. Docket Entry No. 15 at 10. As such, there are no material
facts in dispute regarding Choice Hotels’ legally protected ownership of the marks
at issue.
2. Use of the Marks
Next, Choice Hotels must prove that the Patels used the marks in commerce
without Choice’s consent. “The term ‘use in commerce’ means the bona fide use
of a mark in the ordinary course of trade . . . .” 15 U.S.C. § 1127. A mark is
deemed to be used in commerce “when it is used or displayed in the sale or
advertising of services and the services are rendered in commerce.” Id.
The undisputed evidence demonstrates that Mr. Patel used the registered
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marks in commerce after Choice Hotels explicitly withdrew its consent for him to
do so. The photographs show, and Mr. Patel concedes, that the exact marks were
displayed on the hotel’s exterior signage, credit card receipts, and the Wi-Fi
connection well after the franchise agreement terminated. Defendants argue that
Mr. Patel did not wish or intend to use the marks, but the use element does not
depend on intent. See id.; see also Coach, Inc., 2012 WL 162366, at *4 (finding
use independent of the defendants’ intent). Defendants also argue that the display
of the marks on the credit card receipts and Wi-Fi website did not constitute use
because they were not visible until guests had already decided to stay at the hotel.
But issuing credit card receipts and providing a Wi-Fi connection are nonetheless
part of the hotel’s “sale of . . . services.” 15 U.S.C. § 1127. In sum, there is no
issue of fact regarding whether Mr. Patel used the marks in commerce without
Choice’s consent. Mrs. Patel’s use of the marks is a different story and will be
addressed below.
3. Likelihood of Confusion
Finally, Choice Hotels must prove that the use of the trademarks was likely
to cause confusion. “Confusion” under the Lanham Act encompasses activity that
is likely “to cause mistake, or to deceive as to the affiliation, connection, or
association of such person with another person, or as to the origin, sponsorship, or
approval of his or her goods, services, or commercial activities by another person.”
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15 U.S.C. § 1125(a). The Fifth Circuit uses the following factors, none of which is
dispositive, to determine whether a likelihood of confusion exists: “(1) strength of
the plaintiff’s mark; (2) similarity of design between the marks; (3) similarity of
the products; (4) identity of retail outlets and purchasers; (5) similarity of
advertising media used; (6) the defendant’s intent; (7) actual confusion; and (8)
degree of care exercised by potential purchasers.” Am. Rice, 518 F.3d at 329
(citations and internal quotation marks omitted).
When a defendant uses a plaintiff’s exact marks, as occurred in this case,
courts within this Circuit have determined that a thorough analysis of the digits of
confusion is unnecessary, and a presumption of confusion exists. See Paulsson
Geophysical Servs. v. Sigmar, 529 F.3d 303, 310–11 (5th Cir. 2008) (noting that
marks which are similar, rather than the same, require a greater confusion
analysis); TGI Friday’s Inc. v. Great Nw. Rests., Inc., 652 F. Supp. 2d 767, 767
(N.D. Tex. 2009) (concluding that likelihood of confusion is “evident” when a
defendant used a plaintiff’s exact marks).
Nonetheless, for the sake of
completeness, the Court will apply the digits of confusion test, which demonstrates
that there is no factual dispute regarding a likelihood of confusion in this case.
The first factor—the strength of plaintiff’s mark—supports finding a
likelihood of confusion.
As noted above, Choice’s trademarks have been
registered with the United States Patent and Trademark Office. Moreover, Choice
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Hotels alleges, and Mr. Patel concedes, that the “marks are well known – both
nationwide and internationally – to represent high value, mid-priced hotel and
motel services.” Docket Entry No. 29 at 17. Accordingly, the undisputed facts
regarding this factor heavily favor Choice Hotels.
The second factor—the similarity of the marks—also strongly favors finding
a likelihood of confusion given that the subject hotel displayed Choice’s exact
marks. See Figure 2, supra.
The third and fourth factors—the similarity of the products and the identity
of retailers and purchasers—also favor a finding of likely confusion because the
Patels and Choice Hotels are both providers of roadside, value lodging. The fact
that the Patels’ hotel was formerly a Comfort Inn only heightens the likelihood for
confusion.
The fifth factor—the similarity of advertising media used—does not heavily
weigh in the Court’s calculus, as neither party has presented evidence sufficient to
compare the parties’ overall advertising approaches.
The sixth factor—the intent of defendants—does not decisively favor either
party. The Fifth Circuit has noted that “if the mark was adopted with the intent of
deriving benefit from the reputation of (the plaintiff,) that fact alone may be
sufficient to justify the inference that there is confusing similarity.” Am. Rice, 518
F.3d at 332 (citation and internal quotation marks omitted). As discussed below, a
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fact issue remains as to Mr. Patel’s intent in using the Comfort marks after the
termination of the franchise agreement.
On one hand, Mr. Patel undertook
extensive efforts to remove Comfort Inn’s name from his hotel by, among other
things, discarding all of the Choice items in the hotel rooms, registering a new
name for the hotel, and discontinuing the yellow page advertisements.
Additionally, the Patels argue that they kept the signs not to benefit off the
Comfort name, but to save them for a new franchise. On the other hand, Mr. Patel
took years to completely remove the Comfort name from his exterior signage,
receipts, and Wi-Fi website, despite numerous cease-and-desist letters from Choice
Hotels. In any event, “[p]roof of the defendant’s intent to benefit from the good
reputation of the plaintiff’s products is not required in order to establish
infringement.” Id. (citation and internal quotation marks omitted). Mr. Patel’s
possible lack of intent does not overwhelm the other factors.
The seventh factor—actual confusion—again favors Choice Hotels.
As
described above, Choice Hotels has presented evidence, albeit limited, in the form
of customer complaints3 showing that real guests who stayed at the Patels’ hotel
after April 8, 2009, believed they were staying at a Comfort Inn. Such evidence
“may be the best evidence of a likelihood of confusion.” Bd. of Supervisors for La.
State Univ. Agric. & Mech. Coll. v. Smack Apparel Co., 550 F.3d 465, 483 (5th
3
See supra note 2 regarding the admissibility of the consumer complaints.
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Cir. 2008).
Neither party has provided evidence regarding the final factor—the degree
of care of potential purchasers—and the Court accordingly finds it to be
inapplicable to the present facts.
In sum, the record does not contain any evidence that creates a genuine issue
of material facts regarding the likelihood of confusion. Putting aside the intent
factor, the remaining factors heavily support a finding that Mr. Patel’s use of the
Comfort marks created a likelihood of confusion. Because there is no genuine
dispute that Mr. Patel used Choice Hotels’ legally protected marks in commerce
without Choice’s consent and that such use was likely to cause confusion,
summary judgment establishing Mr. Patel’s liability under the four causes of action
is warranted.
B. Mrs. Patel’s Liability
Mrs. Patel’s involvement in infringing Choice Hotel’s trademark is less
clear. The Fifth Circuit allows for trademark infringement actions against both
individuals and corporations. See Mead Johnson & Co. v. Baby’s Formula Serv.,
Inc., 402 F.2d 19, 23 (5th Cir. 1968). With respect to actions against individuals,
like this one, a trademark “is infringed when an individual performs the act or does
the things that the patent or trademark law protects against.” Id. Thus, “[a]n
individual can be held personally liable if he ‘actively and knowingly caused the
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infringement.’” Taylor Made Golf Co. v. MJT Consulting Grp., LLC, 265 F. Supp.
2d 732, 746 (N.D. Tex. 2003) (quoting Chanel, Inc. v. Italian Activewear of Fla.,
Inc., 931 F.2d 1472, 1477 (11th Cir. 1991)).
The Court finds that a fact issue remains concerning whether Mrs. Patel
“actively and knowingly caused the infringement.” Id. The Patels’ admission that
they “are engaged in the rendering of hotel/motel services at [the subject
property],” Docket Entry No. 15 at 1, does not necessarily mean that Mrs. Patel
participates onsite or that she is involved in the hotel’s use of marks. Undermining
the broad inference Choice Hotels draws from that admission is Mrs. Patel’s
deposition testimony that she abandoned the day-to-day operations and “left
everything” concerning the hotel in 2004 to take care of her grandson. Docket
Entry No. 49-2 at 3. Also relevant is the premises manager’s testimony that he did
not see Mrs. Patel at the property since April 2009, as opposed to seeing Mr. Patel
every day. Docket Entry No. 36-3 at 3.
Given this evidence, a reasonable jury could find that Mrs. Patel is not liable
for trademark infringement or the related causes of action. Summary judgment is
not appropriate against Mrs. Patel.
IV.
REMEDIES
Choice Hotels also seeks summary judgment rulings granting (1) injunctive
relief; (2) an award of monetary damages in the form of the Patels’ profits and
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reasonable royalties; and (3) a trebling of damages. For the reasons below, the
Court grants a permanent injunction, but finds that certain questions of fact
preclude a judgment on monetary damages at this point.
A. Permanent Injunction
A plaintiff seeking a permanent injunction must satisfy a four-factor test,
demonstrating: “(1) that it has suffered an irreparable injury; (2) that remedies
available at law, such as monetary damages, are inadequate to compensate for that
injury; (3) that, considering the balance of the hardships between the plaintiff and
defendant, a remedy in equity is warranted; and (4) that the public interest would
not be disserved by a permanent injunction.” eBay Inc. v. MercExchange, L.L.C.,
547 U.S. 388, 391 (2006) (so holding in the context of patent law (citations
omitted)). The decision to grant or deny a permanent injunction is grounded in
principles of equity and is in the discretion of the district court. Id.; 15 U.S.C.
§ 1116(a).
The evidence in this case supports entry of a permanent injunction. Choice
Hotels has established that it suffered an irreparable injury. “When a likelihood of
confusion exists, the plaintiff’s lack of control over the quality of the defendant’s
goods or services constitutes an immediate and irreparable injury, regardless of the
actual quality of those goods or services.” Quantum Fitness Corp. v. Quantum
LifeStyle Centers, L.L.C., 83 F. Supp. 2d 810, 831 (S.D. Tex. 1999) (citations
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omitted). A hotel franchisor, such as Choice Hotels, is particularly susceptible to
irreparable injury when its trademark is infringed. As another district court within
this Circuit has explained:
The necessity of preventing such confusion is particularly pressing in
the context of a motel chain because guests may only stay at a
particular franchise once. A bad experience at one location of what is
supposed to be a relatively uniform chain may influence the customer
to view the entire franchise poorly. A motel that is no longer a
franchisee has little incentive to promote the value of the franchise as
a whole, but its unregulated conduct under the franchise’s trademark
and service mark can significantly impact the customer good will
associated with those marks.
Ramada Franchise Sys., Inc. v. Jacobcart, Inc., No. 3:01CV0306D, 2001 WL
540213, at *3 (N.D. Tex. May 17, 2001) (granting preliminary injunction). Here,
Choice Hotels’ loss of control over its Comfort brand is not only hypothetical, but
has been shown to exist through customer complaints. Accordingly, Choice Hotels
has met its burden of demonstrating irreparable injury.
Choice’s loss of control also demonstrates that money damages cannot
adequately compensate for the unauthorized use of the marks. See S & H Indus.,
Inc. v. Selander, -- F. Supp. 2d --, No. 3:11-CV-2988-M-BH, 2013 WL 1131077,
at *8 (N.D. Tex. Mar. 19, 2013) (citations omitted). Because Choice’s goodwill
and reputation cannot be easily quantified, there is no adequate monetary remedy.
See Coach Inc., 2012 WL 162366, at *12 (citation omitted); see also Pro
Hardware, Inc. v. Home Ctrs. Of Am., Inc., 607 F. Supp. 146, 154 (S.D. Tex. 1984)
17 / 28
(noting the difficulty of calculating compensatory damages).
With respect to the third factor, a balance of the hardships between Choice
Hotels and Mr. Patel favors equitable relief. The hardship Mr. Patel would face
with the entry of a permanent injunction—namely, complying with state and
federal law—pales in comparison with the irreparable harm that Choice Hotels
would face if Mr. Patel once again began displaying the Comfort marks at the
subject property. See Coach, Inc., 2012 WL 162366, at *12.
Finally, a permanent injunction would serve the public interest by protecting
consumers from deception or confusion. See S & R Corp. v. Jiffy Lube Int’l, Inc.,
968 F.2d 371, 379 (3d Cir. 1992) (“Where a likelihood of confusion arises out of
the concurrent use of a trademark, the infringer’s use damages the public
interest.”). Moreover, “the entry of an injunction comports with the public interest
because it advances the purposes of the Lanham Act.” S & H Indus., 2013 WL
1131077, at *9; see also Quantum Fitness Corp., 83 F. Supp. 2d at 832 (“The
public interest is always served by requiring compliance with Congressional
statutes such as the Lanham Act and by enjoining the use of infringing marks
(citations omitted)); Ramada Franchise Sys., 2001 WL 540213, at *3 (noting that
the public interest “promotes the protection of valuable trademarks and service
marks in a capital-based economy that rewards success through competition”).
The Court accordingly finds that principles of equity require injunctive relief
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for Choice Hotels.4
B. Monetary Damages
Upon a finding of trademark infringement, section 1117 of the Lanham Act
entitles a plaintiff, subject to principles of equity, to recover: “(1) defendant’s
profits, (2) any damages sustained by the plaintiff, and (3) the costs of the action.”
15 U.S.C. § 1117(a). But because the goal of the statute is to achieve equity
between the parties, its application requires a case-by-case evaluation “to
determine the nature of the infringing conduct and its adverse effects, if any, on the
plaintiff.” Seatrax, Inc. v. Sonbeck Int’l, Inc., 200 F.3d 358, 369 (5th Cir. 2000).
In this light, the statute provides:
If the court shall find that the amount of the recovery based on profits
is either inadequate or excessive the court may in its discretion enter
judgment for such sum as the court shall find to be just, according to
the circumstances of the case.
15 U.S.C. § 1117(a). Section 1117 also notes that the monetary damages shall
constitute “compensation and not a penalty,” and that reasonable attorney fees may
be available in “exceptional cases.” Id. Though the district court has discretion in
determining an equitable damages award, genuine disputes concerning material
facts, such as the actual amount of damages or the willfulness of infringement, may
still preclude a summary judgment award of damages. See Leatherwood v. Def.
4
Given the Court’s ruling, Plaintiff’s application for a temporary restraining order (Docket Entry
No. 38) is DENIED as moot.
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Procurement Mfg. Servs. Inc., No. 403-CV-313-Y, 2004 WL 691218, at *7 (N.D.
Tex. Mar. 16, 2004) (“Because the Court concludes that there are still genuine
issues of fact relating to plaintiff’s claims, the Court will not determine at this time
whether and to what extent [plaintiff] is entitled to monetary damages.”).
1. Accounting of Profits
The first monetary remedy that Choice Hotels seeks judgment for is profits
during the period of infringement, which Choice calculates to be $674,207.44.
Docket Entry No. 29 at 25.
Such an award of profits is “not automatic.” Seatrax, 200 F.3d at 369 (citing
Pebble Beach Co. v. Tour 18 I Ltd., 155 F.3d 526, 554 (5th Cir. 1998), abrogated
on other grounds, TrafFix Devices, Inc. v. Mktg. Displays, Inc., 532 U.S. 23
(2001)). The Fifth Circuit has identified the following nonexhaustive factors to
determine when a plaintiff is entitled to an accounting of the defendant’s profits:
“(1) whether the defendant intended to confuse or deceive; (2) whether sales have
been diverted; (3) the adequacy of other remedies; (4) any unreasonable delay by
the plaintiff in asserting her rights; (5) the public interest in making the conduct
unprofitable, and (6) whether it is a case of palming off.” Id. (citations omitted).
If an award of profits is found to be appropriate, the plaintiff is only entitled to
those profits attributable to the unlawful use of the mark; but, the burden is on the
defendant to show that he made no profit from the infringing use of the mark.
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Pebble Beach, 155 F.3d at 554–55 (citations omitted).
Here, genuine disputes of material facts preclude a ruling of summary
judgment for the hotel’s profits. The first factor—intent to confuse or deceive—
though not dispositive, “is an important factor which must be considered when
determining whether an accounting of profits is appropriate.” Quick Techs., Inc. v.
Sage Group PLC, 313 F.3d 338, 349 (5th Cir. 2002); see also Seatrax, 200 F.3d at
372 n.9 (noting absence of cases within the Fifth Circuit where an accounting of
profits has been awarded without a finding of willfulness); Ironclad, L.P. v. PolyAmerica, Inc., No. 3:98-CV-2600P, 1999 WL 826946, at *8 (N.D. Tex. Oct. 14,
1999) (noting that the “availability of both monetary damages and attorney’s fees
hinge on determining the egregiousness and willfulness of a defendant infringer’s
action” and denying summary judgment for those remedies because questions of
fact remained).
A reasonable jury could find that the Mr. Patel did not intend to confuse or
deceive his clientele. As described above, Mr. Patel undertook extensive efforts to
remove the Comfort name from the hotel. Such efforts distinguish Mr. Patel from
the defendants recently ordered to disgorge profits in Choice Hotels International,
Inc. v. Bhakta, No. 2:11-cv-00411, 2013 WL 1403526 (S.D. Tex. Apr. 5, 2013),
who appear to have continued operating their hotel as a Choice Hotel franchise
21 / 28
after the termination of the franchise agreement.5 The Bhakta opinion makes no
mention that the defendants removed any of Choice’s marks or even abandoned
using Choice’s brand name. Id.
Additionally, the mere inclusion of the Comfort name on credit card receipts
and the Wi-Fi connection website is not the type of willful and egregious conduct
for which courts within this circuit have previously awarded profits. See, e.g.,
Interstate Battery Sys. of Am., Inc. v. Wright, 811 F. Supp. 237, 243, 246 (N.D.
Tex. 1993) (finding intent and awarding profits where defendants’ employees were
placing plaintiff’s labels on batteries that they clearly knew were not plaintiffs’
batteries); see also Coach, Inc., 2012 WL 162366, at *10 (finding willful intent
when defendants bought items far below market value and sold them after being
informed that the items ordered from China were counterfeit and similar items
were seized by U.S. Customs for being counterfeit).
Moreover, because all
reasonable doubts on questions of fact must be resolved in favor of the nonmoving
party, the Court will consider the delay in removing the exterior signage to be due
to Mr. Patel’s plans to franchise a new Choice Hotel located elsewhere in Victoria
(Defendant’s characterization), rather than “dilatory, self-serving efforts”
(Plaintiff’s characterization). Compare Docket Entry No. 36-2 at 5–7, with Docket
5
Choice Hotels moved for this Court to take judicial notice of the adjudicative facts in the
Bhakta matter. Docket Entry No. 51. As is clear from the discussion above, the Court grants
that request, as well as the similar requests for judicial notice in Docket Entry Nos. 44 and 46.
22 / 28
Entry No. 42 at 10.6
As to the second factor, questions remain about whether Choice Hotels’
sales have been diverted. While Choice Hotels has presented evidence of customer
complaints, suggesting that a handful of customers may not return to a Comfort
Inn, it has failed to present evidence or explain how its sales were diverted to the
Patels.7 Choice has not presented evidence that one of its competing hotels existed
in Victoria that guests could have stayed at instead of the subject property.
Furthermore, questions still remain about how much of the Patels’ income was
attributable to using the Comfort Inn trademarks, as opposed to the Eagle Ford
shale-induced economic boom in Victoria or a host of other factors. Mr. Patel
contends that the hotel’s profits were not attributable to the Comfort Inn name or
affiliation given that its clientele is derived more from oilfield and construction
companies who rent out blocks of rooms, than from transient tourists who pick a
hotel by its outdoor sign.8 Choice Hotels has not proven at this stage of the
litigation that an award of $674,207.44 in profits is consistent with the principles of
6
While Choice Hotels lodges evidentiary objections to certain testimony that Mr. Patel provided
about the potential new franchise, it does not object to the general statement that Mr. Patel
intended to franchise another Choice Hotel. See Docket Entry No. 48 at 7–11. In any event,
such a statement is admissible as it represents Mr. Patel’s personal motivation for his actions.
7
See supra note 2 regarding the admissibility of consumer complaints. Regardless of the
admissibility issues, there is no evidence of diversion.
8
Choice Hotels objects to testimony provided by Mr. Patel—which attributes the hotel’s
profitability to the improved economy driven by the increase in oil and gas production in the
area—based on Federal Rules of Evidence 701, 702, 801, 802, and 1002. Docket Entry No. 48
at 4–5. The Court overrules the objections for the primary reason that the statements are based
on Mr. Patel’s personal knowledge.
23 / 28
equity upon which the Lanham Act damages regime is based and the Act’s explicit
directive that a markholder only be entitled to those profits attributable to the
unlawful use of the mark. See 15 U.S.C. § 1117(a).9
With respect to the third factor, the adequacy of other remedies, the Court
notes that a permanent injunction should be able to prevent any future instances of
infringement. See Pebble Beach, 155 F.3d at 555 (“Considering the lack of actual
damages and the lack of an intent to confuse or deceive, injunctive relief satisfies
the equities in this case.” (citations omitted)). Though the injunction may not cure
any damage that Choice Hotels’ reputation has suffered, appropriate monetary
damages may be determined and awarded after factual issues are resolved.
The Court finds that the fourth and fifth factors—plaintiff’s delay in
asserting its rights and the public interest in making the misconduct unprofitable—
favor Choice Hotels’ request for an accounting of profits. But because there is no
evidence of “palming off,” the sixth factor, like the first three, weighs against such
relief.
In sum, the evidence in this case does not support a summary judgment
ruling awarding Choice Hotels the Patels’ profits.
9
Additionally, it is unlikely that any of the Patel’s profit would be attributable to Choice’s marks
after the signs were painted over in November 2011. Though the credit card receipts and Wi-Fi
connection website may have given guests the impression that they stayed at a Comfort Inn and
driven away future business for Choice Hotels, the receipts and website, which would only be
seen once a guest had registered, would not have caused a guest to stay at the subject property
and boost the Patels’ profits.
24 / 28
2. Reasonable Royalties
In addition to an accounting of profits, Choice Hotels also seeks a summary
judgment ruling awarding it royalties for the period during which Mr. Patel
continued to use the Comfort marks.
Such royalties amount to $156,481.39.
Docket Entry No. 29 at 26.
“Usually, when the courts have awarded a royalty for past acts of
infringement, it was for continued use of a mark after a license ended and damages
were measured by the royalty rate the parties had agreed on.” 5 J. Thomas
McCarthy, McCarthy on Trademarks and Unfair Competition § 30:85 (4th ed.
2013). For instance, in Boston Professional Hockey Association, Inc. v. Dallas
Cap & Emblem Manufacturing, Inc., the court supported issuing an award of
royalty damages when the defendant sold embroidered emblems of NHL insignias
without obtaining a license from plaintiffs. 597 F.2d 71, 75–76 (5th Cir. 1979).
The Federal Circuit has construed Boston Professional Hockey Association to
“stand[] for the proposition that any royalty-based measure of damages must
exhibit a strictly rational correlation between the rights appropriated and the
measure of damages applied.” Bandag, Inc. v. Al Bolser’s Tire Stores, Inc., 750
F.2d 903, 920 (Fed. Cir. 1984). Thus, in Bandag, the court found a full royalties
award to be inappropriate where the infringer had only used the mark for a single
advertisement in the telephone book. Id. Similarly, in the hotel context, at least
25 / 28
one court within this circuit has reduced damages based on a percentage of
royalties, when the infringement was only partially accountable for the defendant’s
business. See Holiday Inns, Inc. v. Airport Holiday Corp., 493 F. Supp. 1025,
1028 (N.D. Tex. 1980) (“Seventy per cent of room sales were due to [the general
manager’s] efforts and only thirty per cent due to potential patrons of Plaintiff’s
licenses seeing Defendants’ motel with the infringing and unfair use of Plaintiff’s
marks.
Therefore Plaintiff’s damages are thirty per cent of [the calculated
royalties].”).
At this stage of the litigation, Choice Hotels has not presented sufficient
evidence for the Court to issue an award of royalties. Specifically, Choice Hotels
has failed to present evidence calculating the purported damage to its goodwill10 or
the Patels’ unjust enrichment from unlawfully using the Comfort marks.
Accordingly, summary judgment for royalty damages is inappropriate.
C. Treble Damages
Lastly, Choice Hotels seeks summary judgment for treble damages. Section
1117(b) of the Lanham Act instructs courts to treble damages or profits if the
violation consists of intentionally using a mark or designation with the knowledge
that the mark is counterfeit, unless the court finds extenuating circumstances. 15
10
Moreover, Fifth Circuit precedent suggests that royalty damages may not be an appropriate
proxy for lost good will. See Brennan’s Inc. v. Dickie Brennan & Co., 376 F.3d 356, 372 (5th
Cir. 2004) (rejecting royalties award as a proxy for lost goodwill in contract action).
26 / 28
U.S.C. § 1117(b)(1).
Nonetheless, the Court refuses to award treble damages at this time for two
reasons. First, as explained above, a fact issue exists concerning whether Mr. Patel
wrongfully intended to infringe Choice Hotels’ trademarks. See Neles-Jamesbury,
Inc. v. Bill’s Valves, 974 F. Supp. 979, 982 (S.D. Tex. 1997) (refusing to apply
section 1117(b) where jury found that defendants did not wrongfully intend to
infringe plaintiff’s trademarks or engage in unfair competition); Oyster Software,
Inc. v. Forms Processing, Inc., No. C-00-0724 JCS, 2001 WL 1736382, at *10
(N.D. Cal. Dec. 6, 2001) (denying summary judgment regarding treble damages
and costs because issues of fact remained as to willfulness). Second, similar fact
issues also prevent the Court from determining at this point whether extenuating
circumstances exist such that equitable principles would disfavor a trebling of
damages. See Rolex Watch USA, Inc. v. Meece, 158 F.3d 816, 820 (5th Cir. 1998)
(noting that awards under section 1117 “are never automatic and may be limited by
equitable considerations” (citation and internal quotation marks omitted)).11
11
Given the Court’s ruling on treble damages, it need not address the issue of whether the marks
here are not “counterfeit” and thus outside the reach of section 1117(b). See Am. Registry of
Radiologic Technologists v. Garza, 512 F. Supp. 2d 902, 912 (S.D. Tex. 2007) (departing from
decisions of other circuits in holding that the “obvious meaning of 15 U.S.C. § 1114(1)(a) does
not include the affixation of someone else’s genuine trademark on one’s own goods or the
promotion of one’s own services through the use of another’s genuine trademark”).
27 / 28
V.
CONCLUSION12
For the foregoing reasons, Plaintiff Choice Hotels International, Inc.’s
Motion for Summary Judgment or, Alternatively, for Partial Summary Judgment
(Docket Entry No. 29) is GRANTED IN PART and DENIED IN PART.
Specifically, the Court finds that:
• There is no genuine issue of material fact with respect to Choice Hotels’
claim that Mr. Vinodbhai Patel is liable for trademark infringement under
the Lanham Act (15 U.S.C. § 1114); false designation of origin under the
Lanham Act (15 U.S.C. § 1125); trademark infringement under Texas
common law; and unfair competition under Texas common law.
• Genuine issues of material fact remain with respect to Choice Hotels’ claim
that Mrs. Ilaben Patel is liable for those causes of action.
• Choice Hotels has satisfied all four requirements for the issuance of a
permanent injunction as to Mr. Patel. The Court will file a permanent
injunction by separate order.
• Genuine issues of material fact remain with respect to Choice Hotels’
requests for an accounting of profits, reasonable royalty damages, and treble
damages.
SIGNED this 16th day of April, 2013.
___________________________________
Gregg Costa
United States District Judge
12
The Court also DENIES Defendants’ motion to strike Plaintiff’s summary judgment evidence
(Docket Entry No. 37) and Plaintiff’s amended motion to strike Defendants’ summary judgment
evidence (Docket Entry No. 48). To the extent any of the objections not addressed above had
merit, the Court did not rely on the corresponding evidence in reaching its decisions.
28 / 28
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