No infringement if operating agreement authorizes use of mark

In Segal v Geisha NYC LLC (Case 06-2897, February 22 2008), the US Court of Appeals for the Seventh Circuit has upheld the district court's dismissal of Jonathan Segal's complaint for failure to state a federal infringement claim.

Segal, a co-founder of the Chicago restaurant Japonais, alleged that the other three co-founders misappropriated the Japonais name and design in violation of Paragraph 1125(a) of the Lanham Act by expanding a restaurant concept including the name to other US locations without giving him notice thereof. JAPONAIS was not a federally registered service mark at the time of the suit.

When the four founders originally created the concept for a Chicago restaurant, they established two limited liability companies. One of them, Geisha Chicago, is the owner of the Chicago restaurant as well as of all intellectual property related to the restaurant's name and design. The second limited liability company, Hospitality Chicago, is the 'managing member' of Geisha Chicago and, as Geisha Chicago's only member, has complete plenary authority over Geisha Chicago. Hospitality Chicago's operating agreement provides for the expansion of the Japonais restaurant concept to other locations by allowing two or more founders to expand the concept by providing written notice to the remaining founder(s) and the circumstances under which these founders would be allowed to participate in the venture.

In 2006 three of the founders, without providing notice to Segal, expanded the Japonais restaurant concept by opening new locations in Las Vegas and New York. When Segal became aware of the expansion, he asserted trademark infringement under the Lanham Act. The district court granted the defendants' motion to dismiss on the grounds that the operating agreement unambiguously authorized any two founders to expand the concept and to use the intellectual property related to the concept. Due to the explicit authorization, there could be no likelihood of consumer confusion with respect to the source.

The Seventh Circuit, in reviewing the district court's dismissal de novo, also looked to the operating agreement for the assessment of the expansion of the restaurant concept. It agreed with the district court that the agreement specifically authorized two or more founders to expand the restaurant concept to additional locations.

The court stated that in order for Segal to succeed on his claim, he had to prove that:

• Geisha Chicago is the owner of a trademark; and
  
   
• consumer confusion is likely to result from the defendants' use of the mark.

The court concluded that Segal had failed to prove the second prong of the analysis since consumer confusion could not arise. The Lanham Act was not violated in this situation, as the trademark owner had specifically authorized another entity to use its mark. Due to the authorized expansion, patrons of the Las Vegas and New York restaurants were exposed to the intellectual property of the original source and source confusion could not arise.

Katrin Lewertoff, Arent Fox LLP, New York