Padgett Business Services Goes After Former Franchisee for Trademark Infringement

by Womble Bond Dickinson
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Smallbizpros, Inc., d/b/a Padgett Business Services (“Padgett”)[1] asserts trademark infringement in connection with allegations of post-termination obligations of John A. Terris, Sr. (“Terris”) of Brunswick, Georgia, in its complaint filed in the Middle District of Georgia on April 3, 2014.  The complaint seeks an injunction, declaration that Terris’ franchise has been terminated, damages, including actual, punitive, Terris’ profits, trebling of damages, interest, and attorney fees.

The complaint alleges that Padgett is a business services company providing business services through the United States.  Those services include tax consultation and preparation, government compliance and financial reporting, general business advice, and payroll services.  Collectively Padgett’s unique system is known as the “Padgett Business Services System.”   
Padgett has owned the trade name Padgett Business Services® and has provided services under related marks for over 40 years (the “Padgett Marks”).  Services are provided through a network of approximately 400 franchise offices, all operating under the name “Padgett Business Services.”  The franchise agreements license use of the Padgett Marks.  The Terris franchise agreement was entered into in December 1993 and lasted for 20 years before terminating on December 31, 2013, according to the complaint. 

Upon expiration, the terms of the franchise agreement required Terris to return all proprietary materials and discontinue use of the Padgett Marks.  In addition, Terris was precluded from owning or engaging as a manager in any competing business in the franchise territory, as well as from diverting customers to any competitor.  Terris confirmed to Padgett on December 31, 2013 that he did not intend to continue in a relationship.  Shortly thereafter, Padgett reminded Terris of his post-termination responsibilities.  On January 15, 2014, Terris wrote by email to Padgett denying any post-termination responsibilities.  He later explained that he based his understanding on the fact that the franchise had expired rather than being terminated.  Terris continued to provide competing services utilizing the name “Premiere Business Services."  Terris took no steps to transfer his clients over to Padgett.  Instead he continued servicing the clients, using the same phone number – one he was required to turn over to Padgett.

Padgett alleges federal unfair competition under Section 43(a) of the Lanham Act in one of two alternative ways:

(1)    Terris has represented he remains associated with Padgett, when in fact he is not; or

(2)    Terris has represented that he is no longer associated with Padgett, but is confusing the public over the "origin or affiliation of his services" by continuing to use the Padgett Business Services System.

The complaint also alleges willful federal trademark infringement under 15 U.S.C. § 1114, asserting that it is an exceptional case under § 1117 justifying the trebling of damages.  The complaint goes on to allege trademark dilution and breach of contract.
The case is Smallbizpros, Inc., d/b/a Padgett Business Services v. John A. Terris, Sr., No. 3:14-cv-00034-CDL, filed 04/03/14 in the U.S. District Court for the Middle District of Georgia, Athens Division, and has been assigned to U.S. District Judge Clay D. Land.
[1] Another Padgett trademark case has been the subject of an earlier post.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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