Monday, February 05, 2018

Equinox in equipoise: no preliminary injunction for hotel mgmt co against fitness co's expansion to hotels

Equinox Hotel Management, Inc. v. Equinox Holdings, Inc., No. 17-cv-06393, 2018 WL 659105 (N.D. Cal. Feb. 1, 2018)

Equinox Hotel, a “San Francisco-based hospitality company specializing in developing, operating, and revitalizing hotel properties,” provides hotel management services as well as consulting for hotel development projects.  It sought but didn’t get a preliminary injunction against Equinox Holdings, a sports club hoping to expand into the market for the operation or promotion of hotels or the performance of hotel-related services.

Equinox Hotel has a registered mark for the management of others’ hotels.

It also has pending applications for “hotels; hotel development services; hotel management services; restaurant services; and hotel consulting and advisory services.”

Equinox Holdings is a “ ‘fitness giant’ operating EQUINOX-branded luxury health clubs nationwide, in addition to PURE Yoga, Blink Fitness, and Soul Cycle Facilities.” Between 2007 and 2009, Equinox allegedly attempted to register two “EQUINOX word mark[s] for ‘Hotels’ ” with the PTO, which were rejected due to “a likelihood of confusion” with the registered Equinox Hotel mark and ultimately abandoned by defendant.  In 2014, Equinox Holdings applied again to register a mark for ‘Hotels focused on lifestyle, wellness, and fitness”:

That application has been published for opposition. Equinox Holdings also has a new logo and registration application for that logo, which has been the primary logo at its fitness centers since 2000.

Equinox Holdings allegedly “plans to open at least 50 hotels” under its mark, and “has begun construction on its first hotel in New York City and plans to open this hotel in 2018 or 2019.”

The court found that likely confusion couldn’t be found on this record.  “Equinox” is conceptually strong for hotels, and Equinox Holdings has substantial marketplace strength, so the strength factor favored Equinox Hotels.  The proximity of the parties’ services, however, was unclear because the parties disagreed over the relevant consumers.  Equinox Hotel markets its hotel management services primarily to businesses such as third-party branded hotels, which Equinox Holdings doesn’t intend to do.  But the services required to run Equinox Holdings hotels will be the same “services” which plaintiff provides. “On this record, the Court cannot determine whether this is a distinction without a difference.”

Equinox Hotel would like to brand its own Equinox hotels.  But it had insufficient evidence of likely expansion. It has offered hotel-related services to third-party branded hotels for over twenty years yet has never developed an Equinox-branded hotel.  Its desire to do so, and alleged ability to do so “at any moment,” was insufficient under the circumstances.  Ultimately, the court found the services “moderately related,” but the record left the court unpersuaded either way and so this factor was neutral. Relatedly, “in a reverse confusion case...the degree of care exercised is determined with reference to the senior user’s customers.” The record was mixed with respect to the type of services and nature of customer to whom the parties market, so this was also neutral.  And the same lack of evidence of expansion also meant that the likelihood of expansion factor favored Equinox Holdings.

The court found that similarity only “narrowly” favored Equinox Hotel because of the extra words in that party’s mark and visual differences between the marks.  I’m going to call this an instance of what Barton Beebe calls “stampeding”—given the arbitrary nature of the mark and the predominance of the word in both marks, I’d think Equinox Hotel would do better than “narrowly” prevailing on this factor.

Equinox Hotels identified eleven instances of alleged actual confusion, including: a trade show attendee who stated that that he found it “interesting to see what you guys are doing with starting your new hotel fitness brand”; emails from Hotel Management Magazine and Hotel Business Design to Equinox Hotels seeking to discuss Equinox Holding’s “growth from a wellness brand to a hotel brand”; a prospective partner who believed Equinox Hotel was associated with Equinox Holdings; an email from one of Equinox Hotel’s current vendors which requested contact information regarding Equinox Holdings; and an email supposedly showing that a marketing manager responsible for listing attendees at an industry summit was confused as to whether the parties were related.  Eleven instances over the thirty months in which Equinox Holdings announced its intention to expand was too sporadic to support a finding of actual confusion.  Again, I’m a bit surprised by this conclusion, though I’m not convinced it’s wrong, either—with defendant not yet even operating any hotels, a more receptive court might have found that confusion even before Equinox Holdings actually expanded was probative of much more actual confusion once it started doing hotel business.

As for marketing channels, Equinox Hotel argued that the parties “attend industry trade shows and conferences to promote the company” and “use the same trade publications to promote their services, including Hotel Business and Hotel Management Magazine.”  Equinox Holdings rejoined that it advertised its Equinox-branded luxury hotels primarily “on social media and through stylish print ads in consumer magazines that target its customer base, and has no plans to advertise in trade journals.” There was no evidence that it advertised in industry journals, or that Equinox Hotel advertised on social media or in consumer magazines. This factor tipped in favor of Equinox Holdings on the current record.

Intent favored Equinox Hotel because Equinox Holdings was aware of the former’s marks based on the latter’s prior rejected trademark applications and an unsuccessful attempt to buy the Equinox Hotels marks in 2014, but “as this is a reverse confusion case intent plays a less critical role.”

Despite its finding of lack of likely success on the merits (and not even bothering with the old “serious questions going to the merits” alternative), the court proceeded to analyze irreparable harm, and also found none had been shown.  In a reverse confusion case, the junior user overwhelms the senior user. While Equinox Hotel argued that  its corporate identify “will be washed away by the rising tide of publicity associated with” the defendant’s Equinox-branded hotels, eleven confusion incidents over the course of 30 months was insufficient to a “threat of being driven out of business” if the motion for a preliminary injunction were denied, especially given the court’s intention to hold a prompt, pre-opening trial.

Similarly, “potential loss of goodwill or loss of control over one’s reputation...may constitute irreparable harm for purposes of preliminary injunctive relief.” But to show this, a plaintiff “must do more than simply submit a declaration insisting that its reputation and goodwill have been harmed.” It didn’t; again, the limited instances of confusion failed to show a “total” loss of control over its business reputation without an injunction.

Equinox Hotel argued that Equinox Holdings lacks a “track record as a hotel operator,” and if it performed badly, its poor reputation “will become Equinox Hotels’ reputation.” However, other record evidence suggested that Equinox Holdings had a strong reputation for customer service, and there was also evidence indicating that Equinox Hotel’s reputation for customer service wasn’t strong. Given the lack of any record, and the absence of a hotel opening before trial, harm arising from poor performance by Equinox Holdings was too remote to warrant preliminary injunctive relief.

Specifically addressing one of Mark McKenna’s points about the actual harm of confusion, the court also found that the potential loss of business opportunities wasn’t irreparable harm. Equinox Hotel offered one declaration that a prospective partner did not reach out to it because the prospective partner believed that it was associated with Equinox Holdings, which was “too large an entity for the type of deals he works on.”  This was a weak showing of one potential loss across the over two years since Equinox Holdings announced its plans, and even that didn’t show that the prospective partner ultimately declined to do the deal.

Finally, the balance of the hardships favored Equinox Holdings, because it announced its hotel plans in April 2015, but Equinox Hotel didn’t sue until November 2017, then waited three more weeks to seek a preliminary injunction. Because of the delay, Equinox Holding spent 30 months developing and promoting its hotel brand, and delay, “standing alone, constitutes grounds for rejecting [a] motion for preliminary injunction.”

The court also dismissed California UCL and FAL claims with prejudice. They were based on fraud, and in fraud-based cases, the plaintiff has to assert its own reliance rather than the reliance of third parties, even though consumer confusion is the kind of harm at which these laws are directed.

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