Monday, March 10, 2014

Comparisons and copying of business model aren't infringement or false advertising

Garden Catering-Hamilton Avenue, LLC v. Wally’s Chicken Coop, LLC, 2014 WL 810821, No. 3:11cv1892 (D. Conn. Feb. 28, 2014)

Garden Catering alleged that its former employee, Michael Natale, prepared to open a rival restaurant, Wally’s, while employed by Garden Catering, and therefore defendants breached Natale’s fiduciary duty; violated the Lanham Act, Connecticut common law on unfair competition, and Connecticut’s Unfair Trade Practices Act; and were unjustly enriched.

Garden Catering is a restaurant chain with multiple locations in Connecticut and New York.  While he worked at Garden Catering on an occasional part-time basis as a cashier, Natale started making plans to open his own restaurant, which included communicating with another Garden Catering employee about his interest and with Garden Catering’s food supplier. In a meeting with the supplier, Natale’s brother (also an occasional Garden Catering worker) said that Wally’s, which was opening in Storrs, would be “just like” Garden Catering. 

Garden Catering’s head fry cook then unexpectedly announced his intention to resign, allegedly because Natale offered him a higher wage and room and board (in what seems to have been a three-person apartment share) as an enticement.  (You know, there’s a fascinating labor story going on here.  This company apparently expects a lot of loyalty from workers it employed “occasionally” and part-time, when even the head fry cook’s wages were apparently low enough that getting housing with two roommates was a big enticement.)  When Garden Catering confronted Natale about this, he denied plans to open a competing business.

Garden Catering alleged that Wally’s infringed a number of marks, claiming common law rights in “Bits” (for chicken nuggets), “Cones” (for battered and fried mashed potato balls), “the Hotsy” (for various sandwiches topped with chili), “the Special” (a combination meal with half a pound of chicken nuggets, one side, and a soda), “the Junior Special,” “the Boss Special,” and the “Homerun Special.”  Wally’s referred to its chicken nuggets as “bits,” offered “puds,” which are identical to Garden Catering’s “Cones,” and offered two “Topsy” sandwiches, both topped with chili. Also, Wally’s offered several “combo” meals that tracked the Garden Catering “specials,” under the names “The Wally,” “The Mini,” “The Mongo,” and “The Husky.”  Wall’s pricing tiers corresponded with Garden Catering, and it served some orders in insulated bags similar to those used by Garden Catering. 

Garden Catering alleged that this caused confusion, evidenced by postings from Wally’s Facebook page linking the two.  E.g.: “Anyone who likes Garden Catering, or who is looking to eat some great food for a great price needs to check out Wally’s Chicken Coop” and “Thank god someone has brought the joy of GC to Storrs.” Defendants conceded that some customers referred to “Garden Catering” while at Wally’s, and Wally’s employees have told customers that some of the food served by Wally’s is similar to that served at Garden Catering. Shortly after Wally’s opened, a former Garden Catering employee visited Wally’s, and the fry cook told him that Wally’s was “like Garden Catering, but we’re better” and that the “Wally’s Special” was the same as Garden Catering’s “The Special.” Natale also said that “we are kinda like” Garden Catering.

Defendants argued that, because Wally’s is about 104 miles away from Garden Catering, and because plaintiffs didn’t have any patents or similar protection for their menu items, they hadn’t engaged in unfair competition.

The court granted defendants summary judgment on the Lanham Act claim.  As for “Garden Catering” and “Cones,” defendants didn’t directly use the marks; Garden Catering claimed that the infringement consisted of “creating a restaurant with the same overall impression as Garden Catering” plus marketing and statements such as the claim that Wally’s was “like Garden Catering, but we’re better.”  This was an overly broad view of the Lanham Act.  The confusion alleged wasn’t that consumers might believe that Garden Catering was the source of Wally’s.  Rather, it was confusion allegedly resulting from oral statements about similarity to Garden Catering, not connected to any particular use of a mark.  Garden Catering’s claims were based on defendants’ business practices, not trademark infringement, and that’s not actionable under the Lanham Act.

Similarly, Garden Catering’s claim to “bits” was overbroad.  There was no evidence that Garden Catering used “Bits” other than a broad and conclusory assertion by one principal that the term was in use.  This assertion was refuted by Garden Catering’s menu, which called its chicken pieces “nuggets.” No use, no trademark. 

“The Special” was generic for a combination platter of food with a main course, side dish, and soda.  And Wally’s didn’t even use the term generally, using “combos” instead. Nor did Garden Catering show that appending variations to “the Special,” such as “Junior,” “Big Boy,” and “Boss” made the terms sufficiently distinctive to warrant protection.  Also, Wally’s “The Wally” etc. marks weren’t shown to be confusingly similar.

As for the “Hotsy,” the parties disputed whether it was suggestive or descriptive. That line was for a jury to draw, but there wasn’t enough evidence to get to a jury on confusion between the “Hotsy” and the “Topsy.”  Garden Catering argued that consumers would be confused into thinking that the parties were affiliated.  It relied on evidence of consumers connecting Wally’s and Garden Catering, but this didn’t show that use of “Hotsy” had anything to do with that.  Plus, the evidence of affiliation confusion was anectodal, such as customers coming into Garden Catering asking for a “Wally’s Special” or saying that “it is great to hear that Garden Catering is up at UCCON.” Facebook and Twitter posts also suggested that consumers incorrectly concluded that the two restaurants were associated, such as “there’s a garden catering at uconn” and “Wally’s chicken coop=garden catering.”  This was insufficient, especially since a number of postings demonstrated lack of confusion, such as “Wally’s stole [Garden Catering’s] recipe,” “Wally coops is a knock off from them,” and “go to garden catering, it’s the same thing, that’s where Wally’s got the idea from.”

Garden Catering argued that defendants’ intentional copying of its business model gave rise to a presumption of confusion.  But this was outweighed by absence of evidence on the other confusion factors, especially the proximity of the products, which cut strongly against Garden Catering given the over 100-mile distance between them and lack of evidence that Garden Catering’s marks were distinctive in the local Storrs market.

The court noted that, though the Lanham Act protects trade dress, courts have required plaintiffs to be very specific and detailed about the allegedly protected elements.  This Garden Catering did not do.

The false advertising claims also failed.  Statements to customers that Wally’s was “just like” or “similar to” Garden Catering hadn’t been shown to be in “advertising or promotion”; there was no evidence that these statements were widespread, instead of isolated.  Plus, the statements weren’t false or misleading, “as the restaurants were indisputably similar, and the question of which restaurant was “better” was a statement of opinion.”

The court held on to the remaining state law claims given the developed stage of the case; the need for the parties, two small businesses, to resolve their dispute; and the non-novel state law questions at issue.

Breach of fiduciary duty: an employee is entitled to make preparations to compete with her current employer even before she resigns, as long as actual competition hasn’t yet begun, so summary judgment was granted based on claims based solely on Natale’s preparations to compete. However, there was a genuine dispute of material fact about the extent to which Garden Catering’s food preparation and other business information were trade secrets and whether Natale wrongfully used this information in his new venture. (This factual dispute also preserved the unjust enrichment claim.)  Summary judgment was also denied on whether Natale recruited Garden Catering employees to leave while he was still employed by Garden Catering, which would’ve breached his duty of loyalty.

Unfair competition/CUTPA: An employee who acts outside the scope of her employment as a competitor can be subject to a CUTPA claim, so the conduct that could constitute a breach of fiduciary duty could also violate CUTPA’s ban on unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.

1 comment:

  1. Anonymous3:31 PM

    How could there be competition between two deli's if one is located 104 miles from the other?