Monday, February 18, 2008

A trademark dispute over Cheesecake

On February 13, 2008, Cheesecake Factory, Inc., a New Mexico corporation doing business in New Mexico as “Dee’s Cheesecake Factory” (“Dee’s Cheesecake”), filed a lawsuit against The Cheesecake Factory, Incorporated (“TCFI”), the owner of the restaurant chain “The Cheesecake Factory,” in the U.S. District Court for the District of New Mexico. See Cheesecake Factory, Inc. v. The Cheesecake Factory, Incorporated, Case. No. 08-CV-00167 (D. N.M.). A copy of the complaint can be downloaded here.

Dee’s Cheesecake Factory started in 1973 as a wholesale bakery and restaurant. Today, Dee’s Cheesecake is one of the largest producers of cheesecakes in the U.S. – distributing its cheesecakes both nationally and internationally. The company obtained a federal registration for the mark DEE'S FAMOUS CHEESECAKE EMPORIUM (for restaurant services) on October 11, 1988 (although first use in commerce was claimed on August 6, 1986, first use in another form was claimed back to 1973).

The Cheesecake Factory got its start in 1972 with the opening a wholesale bakery and a small retail component in Los Angeles. The company opened its first restaurant in 1978 in Beverly Hills, and today has over 120 locations throughout the U.S. TCFI, through its trademark holding company The Cheesecake Factory Assets Co. LLC, holds numerous trademark registrations on THE CHEESECAKE FACTORY mark (and variations thereon) with many others registration applications pending.

The current lawsuit stems from a trademark infringement lawsuit previously filed by Dee’s Cheesecake in 1997 over TCFI’s use of the name “Cheesecake Factory.”

According to the current complaint, a court decision in the 1997 case found that Dee’s Cheesecake held prior user rights to the CHEESECAKE FACTORY name in “certain parts” of the United States and that the marks DEE’S CHEESECAKE FACTORY and THE CHEESECAKE FACTORY were confusingly similar. The parties subsequently entered into a settlement agreement (which notably was not attached to the complaint) whereby Dee’s Cheesecake sold for cash its right in the CHEESECAKE FACTORY name to TCFI, but with Dee’s Cheesecake retaining an exclusive right to use DEE’S CHEESECAKE FACTORY as the name of her New Mexico-based restaurant and bakery and to use the DEE’S CHEESECAKE FACTORY name worldwide to designate wholesale bakery services (including mail order services). The settlement agreement apparently prohibited TCFI from using the CHEESECAKE FACTORY name in connection with a restaurant in New Mexico.

The complaint also states that the parties entered into a “license agreement” as part of the settlement agreement; however, the complaint characterizes this a “naked license” because TCFI has exercised no quality control over Dee’s Cheesecake’s services, and thus argues that TCFI has forfeited any trademark rights to the CHEESECAKE FACTORY name.

The complaint appears to be going after four particular trademark registrations held by TCFI:

Dee’s Cheesecake asserts in its complaint that TCFI a) never disclosed to the USPTO the settlement agreement that existed between Dee’s Cheesecake and TCFI, and specifically, that TCFI did not have right to use the name CHEESECAKE FACTORY in New Mexico, and b) falsely claimed in each respective application that it had the rights to use the above marks throughout the United States without restriction (Dee’s Cheesecake notes that two of the applications were filed in September 1997 at the very same time that the parties were completing the settlement agreement).

Dee’s Cheesecake argues that had TCFI properly disclosed the settlement agreement to the USPTO, the agency would not have issued registrations – at least not without some kind of geographic scope restriction. As such, Dee’s Cheesecake seeks a declaratory judgment that TCFI committed fraud against the PTO in obtaining the above registered marks, and an order cancelling such marks

Dee’s Cheesecake also alleges breach of contract – specifically, that TCFI, through its conduct in obtaining the above registrations, breached the parties’ settlement agreement. Finally, Dee’s Cheesecake states a claim for unfair competition under New Mexico’s Deceptive Trade Practices Act (N.M.S.A. §57-12-1 et. seq.).

In addition to seeking a court order cancelling the above registrations, Dee’s Cheesecake also requests an order enjoining TCFI from selling its gift cards anywhere in New Mexico. Although the complaint is not entirely clear as to the basis for this injunction, it is likely based on the assertion that TCFI is prohibited from using CHEESECAKE FACTORY in connection with restaurant services anywhere in New Mexico.

Without seeing either the license agreement or the settlement agreement, it is difficult to comment on the merits of Dee’s Cheesecake’s lawsuit. This appears to be the beginning of yet another battle in the so-called “Cheesecake Wars” (as Dee’s Cheesecake describes on its own website (link here)).

What is a Naked License?
While the Dee’s Cheesecake complaint does not go into details regarding TCFI’s alleged “naked license” as a grounds for cancelling the above registrations, the issue is an important one that deserves special mention.

A trademark holder who “licenses” a trademark to another party without maintaining some kind of control over the quality of the goods/services sold under the trademark may be engaging in the “naked licensing” of such trademark, in which case the holder’s rights to the trademark may be deemed abandoned (and any registration on such trademark cancelled). See Barcamerica International USA Trust v. Tyfield Importers, Inc., 289 F.3d 589 (9th Cir. 2002) (registration for “Da Vinci” for wine was cancelled because licensing agreement that did not contain any quality control provisions was a “naked license” and the mark was thus deemed abandoned).

The rationale behind why “naked licensing” is an abandonment of a party’s trademark rights derives from the notion that trademarks are meant to serve as unique identifiers of the source and origin of goods or services for the benefit of the consuming public. The consuming public relies upon trademarks (and the goodwill and reputation attached thereto) to distinguish one party’s goods and services from those offered by another. As such, a party’s failure to exercise any kind of quality control over the use by others of the party’s trademark may result in the trademark no longer being recognized by consumers as a unique identifier of that party’s goods and services in which case the trademark rights associated thereto are deemed abandoned by the trademark holder.

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