In Benihana Case, Slicing & Dicing of Trademark Rights to Licensee Proves Problematic

In early March, the US District Court in the Southern District of New York dismissed a lawsuit brought by Benihana of Tokyo LLC (BOT) against its American counterpart, Benihana, Inc. (BI) that raised claims of breach of contract and breach of good faith, and highlighted the risks of splitting trademark rights between geographic territories.

Background

After a corporate restructuring in 1995, the Benihana restaurant’s ownership was split into two entities, which were to control operations in separate territories. Under their restructuring agreement (the ARA), BI was allowed to operate restaurants in the United States, Central America, South America, and the Caribbean, and BOT was granted the right to operate anywhere outside of that territory. The entities also entered into a license agreement that gave BOT a license to cut into BI’s territory and operate in Hawaii. In exchange, BOT agreed to submit to BI for approval any use of the Benihana trademarks and any changes to the menu as they related to the Hawaii location.
 
In 2013, BI discovered that BOT had been serving a “Beni Burger” in the Hawaii restaurant. After months of demands that the burger be removed because it had not been approved, the two parties entered into a series of legal proceedings. By February 2014, BOT had expanded its burger offerings and BI attempted to terminate the license agreement for good cause.

What Happened?

After an arbitration panel issued a permanent injunction against BOT for materially breaching the license agreement, BOT filed the latest lawsuit rather than appeal. In a tactical maneuver potentially meant to avoid further arbitration, BOT flipped the case around and sued BI on the basis of the ARA instead of the license agreement. BOT alleged that BI was actually the breaching party, arguing that they purposely refused to approve menu changes and advertisements, and that the previous proceedings and enforcement of the license agreement were all part of a plan to force termination of the license and sale of the Hawaii restaurant to BI.

The court rejected BOT’s argument. In particular, the court noted that by suing under the ARA, there was no basis for the suit, as that agreement did not cover refusals to approve ads and menu items.

This case illustrates the issues that may arise when splitting trademark rights between geographic territories and the importance of thoroughly contemplating potential zones of expansion and the operational relationship between connected entities.