Sandwich shop franchisor Erbert and Gerbert (“E&G”) was unable to demonstrate a “better than negligible” likelihood of succeeding on allegations that a former franchisee infringed its trade dress in establishing a new restaurant at the franchised location.

The former franchisee (“Janik”) had operated an E&G sandwich shop in Plano, Texas. E&G terminated the franchise agreement and sued after Janik failed to close its shop. E&G moved for an order to enjoin Janik’s continued operation of the restaurant. Janik then removed E&G’s marks and opened a new restaurant serving sandwiches and salads at the same location. E&G renewed its motion for an injunction, claiming infringement of trade dress and breach of the agreement’s non-compete clause.

The court denied the motion. Though E&G registered its trademarks, it had not registered its trade dress. E&G claimed it had a “distinctive food service system,” reflected in the “distinctive premises of its franchises,” which, in turn, “feature characteristic interior and exterior style; design, décor, furnishings, equipment layout and interior and exterior signage.” As a threshold matter, E&G was required to identify “discrete elements” that made up the trade dress and show the trade dress was not functional. The court found E&G’s layout of the counter and tables and placement of lighting appeared to have only a functional purpose. Thus, E&G’s trade dress was not entitled to protection.

Regarding the non-compete provision, the court noted that E&G had no restaurants in Plano or anywhere in Texas. The closest E&G franchised restaurant was in Colorado. The court found no basis to hold that Janik’s new restaurant would compete with an existing E&G franchised restaurant.

While this decision is welcome news for franchisees, the outcome might have gone the franchisor’s way if it had other franchised restaurants near Janik’s location. Former franchisees should comply with de-identification requirements in their franchise agreements. The case is a warning for franchisors about potential consequences of not registering their trade dress and asserting generic claims for trade dress violations.

E&G Franchise Systems Inc. v. Janik, W.D. Wis., ¶16,301