Federal Court Enforces Franchisee Post-Termination Non-Compete Obligations, Enjoins Trademark Infringement, and Protects Confidential Information

04/18/2014 / the Franchise & Distribution Practice Group

It is always a challenge for franchisors to protect their system after a franchisee leaves ‎the system.  Earlier this month, a Federal District Court in Minnesota issued an order on a ‎motion for a preliminary injunction, that enabled our client, Anytime Fitness, to protect ‎its system in several respects.  Specifically, the Court enforced a post-termination non-compete against the former franchisee, enjoined use of the franchisor’s trademarks, and protected the confidential information of the franchisor. ‎

In Anytime Fitness, LLC v. Edinburgh Fitness, LLC, No. 14-348 (DWF/JJG), 2014 U.S. ‎Dist. LEXIS 50337 (D. Minn. April 11, 2014), the Court was presented with a situation in ‎which an Anytime Fitness franchisee converted its former franchised Anytime Fitness ‎center into a competitive fitness center upon the termination of the franchise ‎agreement, in violation of its obligation not to compete.  The former franchisee also ‎attempted to transfer the names, contact information, and billing information of ‎members of the former franchised location to the competitive facility, arguing that the ‎franchise agreement, while preserving ownership of that information for the franchisor, ‎gave the franchisee the right to use the information during and following the term of ‎the agreement.  The franchisee also continued to display Anytime Fitness’s names ‎and trademarks after the termination of the franchise agreement, both at the location of ‎the former Anytime Fitness center and at another fitness center located several miles ‎away.‎

Anytime Fitness moved for a preliminary injunction to enforce the post-termination ‎obligations in the franchise agreement in several respects.  First, it sought to enforce ‎the franchisee’s covenant not to compete at the location of the former Anytime Fitness ‎center and at a nearby location.  Second, it sought to enjoin the use of Anytime ‎Fitness’s intellectual property, including its trademarks and the confidential ‎membership information associated with the former franchise.  The Federal District Court in Minnesota granted Anytime Fitness’s motion in all respects, enforcing the covenant not to ‎compete with respect to both locations, and enjoining the franchisee and others from ‎infringing on Anytime Fitness’s trademarks (requiring, among others, that the ‎telephone number associated with the former Anytime Fitness center be transferred to ‎the franchisor).  On the issue of the use of the customer information following ‎termination of the franchise agreement, the Court held that use of the information to ‎operate a competitive business “is not an authorized use of the data,” and enjoined the ‎franchisee from disclosing or using Anytime Fitness’s confidential or proprietary ‎information, including customer information.  The Court also awarded Anytime Fitness ‎its attorneys’ fees incurred in enforcing the terms of the franchise agreement.  ‎

For further information on the above case, contact Jim Susag, who represented ‎Anytime Fitness in the matter.‎