The U.S. Court of Appeals for the Seventh Circuit held that the plaintiff's claim under the Lanham Act failed as a matter of law because the defendant (who was co-owner with plaintiff of the original Geisha Chicago sushi restaurant) was authorized to use the trademark for sushi restaurants opened later. Segal v. Geisha NYC LLC, Case No. 06-2897 (7th Cir., Feb. 22, 2007) (Kanne, J.).
In 2003, plaintiff Jonathan Segal worked with Rick Wahlstedt to jointly develop the concept for Japonais, an upscale restaurant and lounge that would serve a fusion of Japanese and European cuisine. To implement this concept, Segal and Wahlstedt hired a culinary expert and an architect to complete the team that would be the "founders" of Japonais. After agreeing on the concept and plans for the restaurant, the founders created two limited liability companies (LLCs) organized under Delaware law. One of these LLCs, Geisha Chicago, owns the Japonais restaurant as well as all intellectual property related to the Japonais name and design. According to Geisha Chicago's operating agreement, the other LLC, Hospitality Chicago, is the only managing member of Geisha Chicago. The operating agreement of Hospitality Chicago vests it with the authority to make all decisions and take all actions for Geisha Chicago and possesses the exclusive power to acquire, utilize or dispose of any asset of the Geisha Chicago.
The operating agreement also provides that if at least two of the four founders "desire to open a restaurant in a location outside the greater Chicago area based upon the Restaurant's Concept (an Expansion)," the expanding founders could do so by delivering written notice to the others setting forth the material terms of the expansion. The operating agreement defines the term "concept," as a restaurant that is "substantially similar" that incorporates "the intellectual property of the Restaurant," which includes "the Restaurant's trade names, trade marks, service marks, trade symbols, emblems, signs, slogans, insignia, [and] copyrights."
In 2006, three of the founders opened additional Japonais restaurant in New York and Las Vegas, utilizing the trade dress and design of the Japonais Chicago restaurant, without offering compensation to Geisha Chicago or Hospitality Chicago. Modeling the corporate organization of the new restaurant after the Japonais Chicago restaurant, the three founders (minus Segal) created Geisha NYC and Hospitality NYC to operate Japonais NYC. Thereafter, Segal filed a complaint against Geisha NYC, Hospitality NYC and Wahlstedt alleging trademark infringement under the Lanham Act. After the district court granted a motion to dismiss, Segal appealed.
Segal argued that the district court erred in dismissing the Lanham Act count because he adequately pled the elements of the claim. Segal also argued that Hospitality Chicago's operating agreement was a contract intended to govern the relationship between the founders and did not and could not authorize the New York entities' trademark use. Addressing Segal's first argument, the Court held that while the Rule 8 of the Federal Rules of Civil Procedure only requires that a complaint adequately plead facts to put a defendant on notice of the plaintiff's claim, a complaint that satisfies the pleading requirements of Rule 8 might still warrant dismissal if the facts pleaded cannot result in any plausible relief.
Turning to Segal's second argument, the Court held that the Geisha Chicago operating agreement delegates all of its corporate power to Hospitality Chicago, including total control over its intellectual property. Further, the Court held that the Hospitality Chicago operating agreement allows two founders to utilize the Japonais "concept," including intellectual property, in order to expand the restaurant nationally. The Court recognized that in order to succeed on his Lanham Act claim, Segal must establish both that Geisha Chicago owns a protectible trademark and that use of this mark by Japonais New York is likely to cause confusion among consumers. However, where the trademark owner authorizes use of the mark, there can be no likelihood of confusion. Applying the law to the case at hand, the Court found that any use of the intellectual property owned by Geisha Chicago was authorized because at least two of the founders had agreed to expand the Japonais "concept". As a result, Segal's Lanham Act claim failed as a matter of law.
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