S & R Corp. v. Jiffy Lube Intern., Inc.
968 F.2d 371
C.A.3 (N.J.),1992.

ROTH, Circuit Judge.

FN1. Appellants Jiffy Lube International, Inc., Jiffy Lube International of Maryland, Inc., W. James Hindman, Edward F. Kelley, III, Arnold Janofsky, Pennzoil Company and Pennzoil Products Company will be referred to collectively as “Jiffy Lube.”

FN2. Durst and Jiffy Lube International of Maryland, Inc. are parties to three lease agreements for the premises upon which the Jiffy Lube service centers are operated. Durst stopped paying rent on the three properties in late 1988 or early 1989. Jiffy Lube Maryland currently has three cases pending in the New Jersey Superior Court to regain possession of the land.

FN3. Section 32 provides:

Remedies; infringement; innocent infringement by printers and publishers

(1) Any person who shall, without the consent of the registrant—

(a) use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark in connection with the sale, offering for sale, distribution, or advertising ... in connection with which such use is likely to cause confusion, or to cause mistake, or to deceive; [ ]

. . . . .

shall be liable in a civil action by the registrant[.]

15 U.S.C.A. § 1114 (West 1963 & Supp.1992).

FN4. Section 43(a) provides:

False designations of origin and false descriptions forbidden

(a) Any person who, on or in connection with any goods or services, ... uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which—

(1) is likely to cause confusion, or 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, [ ]

. . . . .

shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.

15 U.S.C.A. § 1125 (West Supp.1992).

FN5. We note some inconsistency in the court's denial of Durst's request for preliminary injunctive relief, which permitted Jiffy Lube to terminate his franchises, and its later denial of Jiffy Lube's request to make the terminations effective.

[1] [2] The district court had diversity and trademark jurisdiction in this case, and we have appellate jurisdiction over denials of injunctive relief. We review the denial of a request for injunctive relief for an abuse of discretion. Opticians Ass'n of America v. Independent Opticians of America, 920 F.2d 187, 192 (3d Cir.1990). When ruling on a motion for preliminary injunctive relief, the district court must consider four factors: (1) the likelihood that the applicant will prevail on the merits at final hearing; (2) the extent to which the plaintiffs are being irreparably harmed by the conduct complained of; (3) the extent to which the defendants will suffer irreparable harm if the preliminary injunction is issued; and (4) the public interest. Hoxworth v. Blinder, Robinson & Co., 903 F.2d 186, 197–98 (3d Cir.1990). See Opticians, 920 F.2d at 191–92, citing Bill Blass, Ltd. v. Saz Corp., 751 F.2d 152, 154 (3d Cir.1984). All four factors should favor preliminary relief before the injunction will issue. Id. at 192. In this case, the legal dispute centers on the first factor.

[3] Initially, we must determine whether the termination dispute prevents us from granting Jiffy Lube's request for preliminary injunctive relief. We hold that it does not, although Durst argues, and the district court found, to the contrary.

[4] [5] We find that the district court here erred in failing to address the termination dispute. Though there are no cases directly on point in this circuit, we hold by reference to contract and trademark principles that a franchisor's right to terminate a franchisee exists independently of any claims the franchisee might have against the franchisor. The franchisor has the power to terminate the relationship where the terms of the franchise agreement are violated. Once a franchise is terminated, the franchisor has the right to enjoin unauthorized use of its trademark under the Lanham Act. Thus, Jiffy Lube will merit preliminary injunctive relief if it can adduce sufficient facts indicating that its termination of Durst's franchises was proper.

[6] Jiffy Lube must first demonstrate that its claim of damage from unauthorized trademark use is likely to succeed at trial. Under § 43(a) of the Lanham Act, this is possible if Durst's use of Jiffy Lube's valid trademarks is “likely to create confusion concerning the origin of the goods or services,” Opticians, 920 F.2d at 192. To prevail on an infringement claim under § 32 of the Act, Jiffy Lube must demonstrate as well that Durst's use of the marks was unauthorized. See United States Jaycees v. Philadelphia Jaycees, 639 F.2d 134, 137 (3d Cir.1981).

Austin, at 22,069 (emphasis added) (citations omitted). Continued use of the trademark under these circumstances amounts to infringement under the Lanham Act.

FN6. Burger King eventually secured permanent injunctive relief in the Lee litigation. See Burger King Corp. v. Lee, Bus.Fran. Guide (CCH) ¶ 9906 at 22,637 (S.D.Fla. July 30, 1991).

[7] [8] Durst argues that these cases are distinguishable because in none of them did the franchisee claim pre-termination breach by the franchisor. This argument does not, however, affect our conclusion that the franchisor has the independent ability to determine whether termination is appropriate. Where the franchise agreement gives the franchisor the power to unilaterally terminate the agreement under certain conditions, and those conditions exist, pre-termination complaints are not relevant to infringement under the Lanham Act. Rather, pre-termination disputes affect the issue of damages.^FN7

FN7. Durst does not raise an unclean hands defense to his failure to pay royalties under the License Agreement with Jiffy Lube. We note, however, that the defense would have been unsuccessful if alleged. To prevail on an unclean hands defense, the defendant must show fraud, unconscionability, or bad faith on the part of the plaintiff. See Castle v. Cohen, 676 F.Supp. 620, 627 (E.D.Pa.1987), aff'd in part and vacated in part on other grounds, 840 F.2d 173 (3d Cir.1988). None of these elements was alleged in this case. At best Durst contends merely that Jiffy Lube was negligent in failing to monitor local franchise quality.

FN8. We find this conclusion proper even though Durst is currently paying royalties into escrow by order of the district court.

[9] The second factor a district court must consider before granting a preliminary injunction is the extent to which the plaintiff will suffer irreparable injury if such relief is denied. Grounds for irreparable injury include loss of control of reputation, loss of trade, and loss of goodwill. Opticians, 920 F.2d at 195. Lack of control amounts to irreparable injury regardless of allegations that the infringer is putting the mark to better use. Id. at 195–96 (collecting citations). Irreparable injury can also be based on the possibility of confusion. Id. at 196. Finally, and most importantly for this case, trademark infringement amounts to irreparable injury as a matter of law. See id., citing International Kennel Club, Inc. v. Mighty Star, Inc., 846 F.2d 1079, 1092 (7th Cir.1988) (damages “caused by trademark infringement are by their very nature irreparable”).

[10] Even if we were not to conclude that Durst were an infringer, we would find that Jiffy Lube had shown irreparable injury by the lack of control over its mark. Durst admitted to being “innovative” in the administration of his three service centers. He developed new techniques designed to improve the Jiffy Lube image, though he knew these methods deviated from the franchise norm. These actions, taken outside the terms of the License Agreement, were an independent source of harm to the Jiffy Lube name.

FN9. We also note the extreme inconsistency between Durst's argument that his service centers were successful, and thus not causing Jiffy Lube any injury, and his contention that Jiffy Lube's negligent supervision led to such a business decline that Durst was unable to pay royalties. Compare Appellees' Brief at 13 (at time of motion for preliminary injunction, Durst's stores were ranked 1, 4 and 13 respectively in sales volume of a 65–store market) with Appellees' Brief at 14, 40 (Jiffy Lube refused to heed Durst's warnings about the quick lube market; “those warnings became reality and Durst's business slumped badly and made him unable to pay royalties if he was to keep his business afloat”).

One court faced with a similar “inability to pay” argument in the context of a franchise termination dispute refused to admit evidence of the franchisee's impaired ability to pay its fees under the contract. The court found that the terms of the agreement still governed: “With respect to plaintiffs' earning less revenue because of [the franchisor's] alleged breaches and thus having reduced ability to pay fees to [the franchisor], we note that plaintiffs are required to pay eight percent of whatever revenues are in fact received.” Berg v. Copeland Enterprises, Inc., Bus.Fran. Guide (CCH) ¶ 9848 at 22,350 (S.D.Fla. Mar. 4, 1991) (emphasis added). Durst's royalty payments are similarly based on a percentage of revenues received. Both Durst and the franchisee in Berg managed their businesses profitably; nothing excused either of them from paying some amount under the respective agreements.

[11] Jiffy Lube must also show that its benefits from a preliminary injunction are not outweighed by irreparable injury to Durst. Though Durst admittedly presents a sympathetic position, he has brought much of the difficulties of which he complains upon himself. He chose to stop paying royalties, for example. See Opticians, 920 F.2d at 197 (party “can hardly claim to be harmed, since it brought any and all difficulties occasioned by the issuance of an injunction upon itself.”) In choosing to stop his own performance under the contract, he effectively terminated the franchise agreement. Cf. Austin, ¶ 9788 at 22,070. Durst is certainly harmed by the threat of loss of his franchise, but his self-inflicted harm is far outweighed by the immeasurable damage done Jiffy Lube by the infringement of its trademark. Durst is not prevented from seeking damages, but he has not established the right to continue using the trademark. Id.

[12] Jiffy Lube must finally demonstrate that issuance of a preliminary injunction serves the public interest. In a trademark case, the public interest is “most often a synonym for the right of the public not to be deceived or confused.” Opticians, 920 F.2d at 197 (collecting citations). Where a likelihood of confusion arises out of the concurrent use of a trademark, the infringer's use damages the public interest. See id. at 197–98. In this respect, harm to the public interest is much like irreparable injury to the trademark owner. Durst, who is likely to be found an infringer at trial, is thus likely, if not certainly, causing confusion among Jiffy Lube patrons. Injunctive relief would be in the public's interest.

FN10. We note that another court in this circuit recently reached a similar conclusion on nearly identical facts. The decision is unpublished. See Jiffy Lube Int'l, Inc. v. Jiffy Lube of Pennsylvania, Inc., No. 91–6818, 1992 WL 13682, 1992 U.S. Dist. LEXIS 788 (E.D.Pa. Jan. 27, 1992).

【案由】
本案首先是由被上诉人S&R公司和达斯特（以下统一简称“达斯特”）起诉上诉人吉飞润滑油国际公司而引起的，他们声称吉飞违反了商标许可协议。吉飞则请求地区法院作出临时禁令，禁止达斯特继续使用吉飞的商标，地区法院驳回了吉飞的申请，吉飞提起上诉。我们认为吉飞已经清楚证明：达斯特未经同意使用吉飞商标将给吉飞带来难以弥补的损害，因此我们推翻地区法院的裁定，要求地区法院重新审理并作出临时禁令。
吉飞和达斯特签订了若干份特许经营协议，许可S&R公司（由达斯特本人管理）在新泽西州南部经营3家吉飞润滑油店。协议授权达斯特使用“Jiff Lube”商标，享受吉飞公司的统一广告宣传，但必须按月销售额的一定比例向吉飞支付特许经营费。协议规定参与特许经营必须遵守特许人详细的管理规则，涉及店铺外观、员工聘用和培训、财务管理等。吉飞有权对所有成员店进行定期检查。
达斯特从“1988年末或1989年初”停止向吉飞支付特许经营费，但一直继续使用“Jiff Lube”名称来经营那三家汽车养护服务中心。达斯特主张自己有权停止向吉飞支付特许费，因为吉飞违反了特许经营协议约定的某些合同义务。具体而言，吉飞没能够维持它在费城区域其他特许经营店的经营质量，导致达斯特的特许店遭受损失。为了弥补他认为吉飞存在的缺陷，达斯特自己拟定了特许经营店应当如何运作的规则：他采用了新的培训计划，改变了记账制度，并且在他的埃格港店前竖立了一个不符合吉飞要求的霓虹灯牌子。1989年10月，达斯特向吉飞润滑油国际有限公司提起诉讼，主张后者违反了特许经营协议。同时，由于达斯特拒绝支付特许经营费，吉飞宣布终止与达斯特之间的三个特许经营协议。1990年5月，达斯特向法院申请临时禁令，请求法院阻止对方终止特许经营协议。1991年1月，地区法院正式驳回了达斯特的申请。在此期间，吉飞以未支付特许经营费为由已经单方终止了与达斯特签订的三份特许经营协议。然而达斯特继续使用“Jiff Lube”商标经营着那三家服务中心，他主张对方单方终止协议是错误的。
1991年5月，在地区法院驳回达斯特临时禁令申请4个月后，吉飞向地区法院申请临时禁令，请求法院阻止达斯特继续使用其商标。1991年7月，地区法院裁定驳回吉飞的申请，认为吉飞和达斯特之间存在合同终止争议，地区法院在无法确定吉飞胜诉把握的情况下不能做出临时禁令。但是，法院裁定提存达斯特按协议应当支付的特许经营费，直到双方的合同终止纠纷解决。吉飞就地区法院在1991年7月作出的裁定提出上诉。

【判决意见】
我们审查了地区法院驳回临时禁令的裁定。在作出临时禁令救济时，地区法院必须考虑4个因素：（1）申请人最终胜诉的可能性；（2）由于被告的行为，申请人将在多大程度上遭受难以弥补的损害；（3）如果颁布临时禁令，被告将在多大程度上遭受难以弥补的损害；（4）公共利益是否遭受影响。在颁布临时禁令前，所有这4项条件都必须满足。本案中的争议集中在第一个因素。达斯特和吉飞都声称自己正在行使合同规定的合法权利，达斯特主张自己有权继续使用”Jiff Lube”商标（他承认在使用时已经作了某些改变），因为吉飞疏于监管导致他的经营下滑并致使他无力支付特许经营费。吉飞主张自己有权根据合同终止协议，因为达斯特未能按时支付特许经营费；而且，达斯特未经授权使用”Jiff Lube”商标会给吉飞带来难以弥补的损失。在审查了双方引用的案例和国际特许经营协会提供的专家证言后，我们推翻地区法院的裁定。
A
首先，我们必须确定双方之间存在的合同终止纠纷是否导致法院不能给予吉飞临时禁令救济。我们并不这样认为。地区法院和达斯特错误地引用了本巡回法院作出的Aamco案判例 ^[1]，该判例确认，当双方当事人存在违约争议时，给予一方临时禁令救济是不适当的。审理Aamco案的法官们认为，在原被告之间的合同纠纷没有解决之前，不应当审理原告另外提出的不正当竞争之诉。事实上，该案法官作出不予审理的决定是由于法院认为自己没有管辖权。该案法院认定原被告双方当事人并非属于不同州的居民，而且原告没能根据15U.S.C.1114节的“本身违法”规则主张被告违反了联邦商标法。因此，该案法官有关合同纠纷的意见只属于题外话，不具有先例约束力。Aamco案的判决并不支持达斯特的观点。对于本案原被告双方而言，本院具有管辖权，而且原告也根据兰汉姆法案主张被告侵犯了自己在联邦商标法中的权利。
尽管本巡回区尚无直接针对本案争议的判例，我们根据合同法和商标法的原则判定，特许人终止特许经营协议的权利独立于被特许人针对特许人提出的任何诉讼主张。如果被特许人有违反特许经营协议条款的行为，特许人就有权终止双方之间的特许经营合同关系。一旦协议终止，特许人有权根据兰汉姆法，请求制止被特许人未经允许使用其商标的行为。因此，如果吉飞能够提出充分证据证明其终止与达斯特之间的特许经营协议是正确的，则吉飞就有权获得临时禁令的救济。
吉飞必须首先证明，其就达斯特未经授权使用“Jiff Lube”商标提出的损害赔偿诉讼是有可能胜诉的。根据兰汉姆法，如果达斯特使用“Jiff Lube”商标“有可能使商品或服务的来源造成混淆”，则吉飞就有胜诉的可能性。为证明达斯特违反了该法案第32条，吉飞还必须证明达斯特无权使用该商标。
我们认为本案“有可能使商品或服务的来源造成混淆”。毫无疑问的是，本案中达斯特和吉飞在使用同一商标。该商标受法律保护，所有权人是吉飞，他们同时使用同一个商标很可能会给消费者带来误解，即达斯特的店铺与吉飞之间有关联。同样明显的是，达斯特继续使用吉飞商标是未经授权的，违反了联邦商标法第32条“任何人，未经商标注册人同意…将注册人持有的商标用于商业目的…且这种使用有可能造成混淆…应当属于违法”。吉飞于1990年7月16日正式通知达斯特终止特许经营协议，对此，达斯特可以作出两种反应，但他并没有选择其中任何一种。根据合同法基本原则，合同一方当事人如果认为对方违反合同，受害方可以终止履行并解除合同，或者继续履行并提出损害赔偿。在任何情况下，受害方也不能停止履行合同，同时继续享受合同带来的利益。在解决特许经营合同纠纷时，其他司法辖区已经注意到这种窘境。在汉堡王诉奥斯汀案 ^[2]中，被告在乔治亚州经营着两家汉堡王特许连锁店，由于未能按期支付特许经营费，后被终止特许经营，但被告继续以汉堡王的名义经营着这两家店铺。被告主张汉堡王没有给予他们应尽的店铺协助，因此他们支付特许费的义务就免除了。汉堡王根据联邦兰汉姆法提出商标侵权诉讼，并且根据合同提出了诉讼。在考虑汉堡王提出的临时禁令申请时，审理法院指出：
“如果合同一方当事人严重违反了其在合同项下的义务，另一方可以选择一种救济方式，或者考虑终止合同并且起诉对方完全违约，或者继续履行合同并起诉对方部分违约。本案被告已经停止支付特许经营及租赁协议项下到期应付的款项，他们似乎选择了第一种救济方式，将对方的违约行为看作完全违约。因此，被告似乎已经终止了与原告之间的合同关系。尽管被告可能在其提出的对方违约诉讼中胜诉，从而免于支付到期应付款项，或许还有权进一步主张损害赔偿，但是，本院认为这是一项单独的诉因，并不能使他们继续享受特许经营协议项下的权利。如果被告想保留追究对方违约的权利，同时继续使用对方的商标，被告必须继续支付特许经营费、广告费以及房租。”
在这种情况下，继续使用对方的商标构成联邦兰汉姆法下的商标侵权。在奥斯汀案中，法院认为，如果被特许人在特许经营协议终止后继续使用特许人的商标，那么引起消费者混淆的风险就会很高，原告已经实质性地证明了商标侵权诉讼的可能性，因此裁定给予原告临时禁令的救济。法院认为，特许人终止特许协议的权利和被特许人的索赔权利是独立的。
基于类似事实，威斯康星东区地区法院也判定，特许人终止特许协议的权利独立于被特许人的索赔权。在Brosahd案中 ^[3]，原告（被特许人）主张特许人无权解除特许协议，并起诉特许人存在管理不当行为。特许人反诉被特许人已经连续几年不支付特许费，直接违反了特许协议。法院支持了特许人作出简易判决的申请，并指出“即使特许人违反了特许协议，原告也无权继续使用‘Supercuts’商标却不履行对应的付款义务。”上述案例都强烈支持吉飞的观点。
达斯特引用了Guiness ^[4]案，以支持其驳回吉飞临时禁令救济的主张。该案法院驳回了特许人临时禁令救济的申请，认为其没有证明被特许人违反了特许协议条款规定的某项重要义务。与Guiness案不同的是，吉飞-达斯特双方之间的特许协议明确规定，如果被特许人不按期支付特许经营费，特许人可以终止合同。Guiness案的原则并不适用本案。
总之，达斯特所作的正是合同法所禁止的。达斯特认为吉飞违反了合同义务，于是停止向吉飞支付特许经营费，但是他继续使用“Jiff Lube”商标经营他的汽车养护服务中心。双方之间的特许协议授权吉飞“在收到书面通知后30日内仍没有支付上年度的特许经营费或其他任何到期费用的情况下”有权终止特许经营协议。达斯特自从1989年初就停止支付特许经营费，吉飞给了达斯特60天的期限来更正其违约行为，到期后达斯特并没有做出任何反应，因此吉飞终止了特许协议。达斯特或许有权向吉飞主张损害赔偿，但他无权以侵权者的身份继续使用“Jiff Lube”商标。即使达斯特按照地区法院的命令将根据合同应付的特许费提存，我们仍然认为这个结论是正确的。我们认为，吉飞已经充分证明了商标侵权诉讼胜诉的可能性。
B
在准予临时禁令救济之前，地区法院必须考虑的第二个因素是，如果不准予临时禁令，申请人将在多大程度上遭受难以弥补的损害。难以弥补的损害包括丧失控制、丧失经营业务、丧失商誉等。丧失控制会导致难以弥补的损害，这与侵权者是否更加谨慎地使用该商标无关。难以弥补的损害还可能基于造成消费者混淆的可能性。最后，也是本案最重要的是，商标侵权会导致难以弥补的损害，这是一个法律问题。
即使我们不认为达斯特是侵权者，我们仍可能认定吉飞已经证明了难以弥补的损害，因为其丧失了对其商标的控制。达斯特承认自己在经营他的三个汽车养护服务中心时作了“创新”。他开发出新的工艺来改进吉飞的服务形象，他也知道这样做背离了特许经营协议规定的经营规范。这些行为超出了特许经营协议允许的范围，单独构成了对“Jiff Lube”商标的损害。达斯特提出，根据他停止支付特许费时所做的一项调查，他经营的三家服务中心在所有连锁店中分别排名第1位、第4位和第13位。然而，即使达斯特更好地利用了吉飞商标，他的“创新”措施也构成了对吉飞商标难以弥补的损害。
C
吉飞还必须证明其从临时禁令中获取的利益小于对达斯特造成的难以弥补的损害。尽管达斯特的境遇令人同情，他的困境绝大部分是自己造成的。例如，他选择了停止支付特许经营费。选择停止履行他的合同义务后，这意味着他选择了终止特许经营协议。失去特许经营店当然会给他带来损害，但损害是他自己造成的，远远小于他的侵权行为给吉飞商标造成的难以估量的损害。我们并不妨碍达斯特寻求损害赔偿的救济，但是他无法证明他仍有权继续使用吉飞商标。
D
最后，吉飞必须证明临时禁令符合公共利益。在商标案件中，公共利益“绝大多数情况下是公众有权不受到欺骗和混淆的代名词。”如果共同使用某个商标会造成消费者混淆的可能性，商标侵权者就损害了公共利益。在这一点上，对公共利益的损害就如同对商标所有者造成难以弥补的损害一样。达斯特有可能被认定为商标侵权案中的侵权者，就有可能给吉飞的客户带来混淆，就有可能侵犯公共利益。
最后，我们认为吉飞已经满足了临时禁令所必须的四个因素，地区法院错误地拒绝对吉飞终止合同的正确性做出判断，也没有对达斯特是否“未经授权”使用吉飞商标做出判断，从而导致吉飞无法证明其侵权诉讼胜诉的可能性。根据合同法的一般原则，达斯特以吉飞对其他特许经营店存在监管过失为由，在拒绝支付特许费的情况下继续使用吉飞商标，这种行为是合同法不允许的。吉飞有权认为达斯特的上述行为构成违约，从而有权终止合同。达斯特在合同终止后继续使用吉飞商标是未经授权的行为，构成了对吉飞难以弥补的损害。

【评析】
本案双方相互起诉对方违约，并申请法院作出相反的临时禁令。法院分析了作出临时禁令救济时必须考虑4个因素：（1）申请人最终胜诉的可能性；（2）由于被告的行为，申请人将在多大程度上遭受难以弥补的损害；（3）如果颁布临时禁令，被告将在多大程度上遭受难以弥补的损害；（4）公共利益是否遭受影响。在颁布临时禁令前，所有这4项条件都必须满足。法院认为，根据合同法基本原则，合同一方当事人如果认为对方违反合同，受害方可以终止履行并解除合同，或者继续履行并提出损害赔偿请求。在任何情况下，受害方一方面不能停止履行合同，另一方面同时继续享受合同带来的利益，这是合同法不允许的。因此，法院认为本案上诉人达斯特的商标侵权行为已成立。在考虑第2项和第4项因素时，法院采用的是推定标准，即只要商标权人丧失了对商标的控制，换句话说，只要侵权人未经许可使用商标权人的商标，法律就推定会产生难以弥补的损害，会触犯公共利益，这与侵权者是否更加谨慎地使用该商标无关。