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