Monday, October 20, 2014

Federal Court in Massachusetts grants to the Dunkin’ Donuts franchisor a preliminary injunction for trademark infringement and enjoins the Puerto Rico franchisees from prosecuting a subsequent federal action brought under Law 75

This case presents the interplay between federal trademark law and Law 75 and raises a jurisdictional conflict between federal courts in substantially similar cases. In Dunkin’ Donuts Franchised Restaurants LLC v. Wometco Donas Inc., 2014 WL 4542956 (D. Mass. Sept. 11, 2014), appeal pd'g, No. 14-2002 (CTA 1),the court enjoined the prosecution of a subsequently filed Law 75 federal case. The franchisor of Dunkin’ Donuts filed suit in federal court in Massachusetts for trademark infringement and breach of contract against Wometco, the franchisee of 18 stores in Puerto Rico. The complaint requested relief to enjoin the franchisees from trademark infringement and to enjoin the prosecution by franchisees of a related action for Law 75 termination damages pending in the federal court in Puerto Rico.

The crux of the case, and what provoked the termination of the franchise agreement and the resulting trademark infringement from continuing to operate the Dunkin’ retail stores without a valid license, was the franchisees’ failure to pay $190,000 in royalty and renewal fees. The franchisees alleged that termination of the franchise agreement was unjustified and violated Law 75. Defendants also alleged that the license agreement was amended by a prior verbal agreement that waived or excused collection of fees.

The court found that this argument was “not credible” and agreed with the licensor that the agreement had an integration clause that superseded any prior agreements. Thus, there was just cause under Law 75 for termination from the licensees’ breach of the payment obligation. The court concluded at the preliminary injunction stage that the termination was not arbitrary or capricious. Finding that there was irreparable harm from the licensor’s loss of control over its trademark caused by the licensees’ unauthorized use, the court granted the licensor’s request for a preliminary injunction, despite the fact that the relief would cause the closure of all Dunkin’ retail outlets in Puerto Rico.

Finally, the court exercised its discretion to enjoin prosecution of the subsequently filed and “substantially similar” federal case pending in Puerto Rico federal court (Cerezo, J.). The court noted that special circumstances would exist to warrant deviating from the first-filed federal rule where one party races to the courthouse and misleads the other or when the second lawsuit is substantially more convenient. “While Law 75 is not regularly interpreted in Massachusetts courtrooms, Puerto Rico courts have held that other jurisdictions “are fully capable of resolving claims brought under [it]” citing, BMJ Foods P.R., Inc. v. Metromedia Steakhouses Co., L.P., 562 F.Supp.2d 229, 234 (D.P.R.2008). Id. at 10. The court applied the relevant factors and held that there was no justification to depart from the first-filed rule. Thus, it enjoined the franchisees from prosecuting their Law 75 federal action in Puerto Rico.