Together Let's Make Your Business Dreams A Reality SM
  1. Home
  2.  → 
  3. Firm News
  4.  → How will the Trademark Modernization Act of 2020 impact franchisees?

How will the Trademark Modernization Act of 2020 impact franchisees?

| Apr 2, 2021 | Firm News

The last year has brought significant change for everyone. For both individuals and businesses, everyone has seen significant differences in their day-to-day lives.

For franchises and other businesses, the last year has been about adapting the business to continue to maintain profits and client bases. As companies have evolved, so has the legislation that governs them.

At the end of 2020, the Trademark Modernization Act of 2020 was signed into law as part of a coronavirus relief bill. While the legislation has little to do with the pandemic that changed how many companies do business, the relief bill was an opportunity to make changes to trademark usage legislation.

With the consideration of recent cases, the Act amends and updates portions of the Lanham Act to clarify and formalize some of the procedures and protections. The changes have specific advantages for franchisors that could impact how a trademark infringement claim affects a franchisee.

Here’s what you should know about the Trademark Modernization Act of 2020 and how it could impact you as a franchisee.

What will the Trademark Modernization Act of 2020 do?

The Trademark Modernization Act of 2020 updates past legislation and gives the owner of trademarked material the presumption of irreparable harm once they establish infringement early in the process of making a claim. The Act also provides the same presumption after demonstrating a likelihood of success in proving infringement within the context of either a preliminary injunction or a motion for temporary restraining orders.

During a trademark infringement case, this means that a trademark owner, such as a franchisor, will have an easier time during some of the initial steps of their claim. The Act presumes harm on behalf of the trademark owner during a claim that their material was being used inappropriately or without permission. Courts can then provide relief in the form of a preliminary injunction to prevent further harm.

As the case proceeds, it will be necessary for both sides to demonstrate whether the material was, in fact, used inappropriately. While both sides will still need to make their claims regarding the alleged trademark infringement, this change in legislation gives the owner some initial relief with the intent of stopping some of the harm while the claim is in progress. Ultimately, part of the goal of the trademark owner will be to get permanent injunctive relief.

When does it take effect?

Most of the Act will not go into effect until later this year, on December 27, 2021. However, it is essential to keep in mind that some of the Trademark Modernization Act adopts principles that already exist in relevant case law.

Why change?

Before the Trademark Modernization Act, a trademark owner seeking relief needed to go through a process for demonstrating harm through a four-factor test that includes:

  • Demonstration of suffering an irreparable injury
  • Legal remedies, like monetary damages, are inadequate
  • Due to the hardships between the parties, a remedy is warranted
  • A permanent injunction would not disserve the public interest

The judges hearing eBay Inc. v. MercExchange, L. L. C., 547 U.S. 388 (2006), discussed this four-factor test and how challenging it is to address these factors fairly. Ultimately, eBay was remanded to the lower courts for reconsideration.

More than once, courts have looked at situations like these and considered whether the four-factor test was applied fairly. After looking at cases like eBay and others, the legislature updated how courts should look at trademark questions like this. Now, rather than demonstrating all four factors before getting injunctive relief, the Act allows the presumption of harm to grant trademark owners immediate preliminary injunctive relief.

How would the Act apply to franchises?

Within franchises, the question of trademark infringement tends to come in a holdover situation. A holdover happens when a franchisee continues to operate the franchise past the end of the contract and with no future agreement in place. In some cases, the franchisee continues to operate in the same way as before the contract ended. Still, in others, the franchisee uses the franchise as a springboard to their own competing business.

Once the franchise contract is complete, the franchisee no longer has permission from the franchisor to use the trademarked material. During a holdover situation like this, the franchisee is at risk for wrongfully using the trademarked material since they are no longer authorized to continue operating the franchise.

Typically, these holdover situations are ones where the franchisee begins operating a competing business in the same location while using the franchisor’s trademarked materials. In these cases, not only has the franchise relationship ended, but the franchisee has also made their own effort to compete against the original franchise.

When a franchisee is holding over, the franchisor has the opportunity to apply for relief through the Trademark Modernization Act. The Act clarifies the evidentiary burden for franchisors in this situation, allowing them to seek relief through an injunction.

What happens after a franchisor makes a claim against a franchisee?

The Trademark Modernization Act of 2020 allows for both injunctive relief and the opportunity for monetary damages. A claim made through this Act would likely start with preliminary injunctive relief.

If you are a franchisee, you would need to stop using the trademarked material in question once the court grants injunctive relief to the franchisor. It will also be essential to start working with an experienced franchise attorney who can help you support your defense to a trademark claim. Your attorney can also help you manage and understand the impact the claim could have on your future endeavors.

Does this legislation mean franchisors have it easy?

The Act makes the initial process for getting injunctive relief simpler. However, a franchisor who is making a claim still should submit evidence of actual irreparable harm. While a trademark owner could rely solely on the presumption of harm, palpable evidence will help demonstrate alleged damage.

As a franchisee, it will be essential to seek assistance from an experienced professional early in the process. A lawyer with specific experience in franchise law will understand your case’s nuances and the best way to proceed with your defense.