The NAM, the Association of Equipment Manufacturers and the National Marine Manufacturers Association filed an amicus brief 7/3/07 urging the Seventh Circuit to overturn a lower court ruling that prevented Volvo from terminating a relationship with a dealer that had contracted to sell another company's branded construction equipment. A Maine franchise law specifies that franchisees may only be terminated for "good cause," but we argued that substitution of a trademark on a product discontinues production and distribution of the franchise goods and provides goods cause for termination of the franchise. Volvo had bought the assets of Samsung and discontinued the Samsung-trademarked items, selling instead its own products through existing exclusive dealerships. A Samsung dealer sued, arguing that it should be able to sell Volvo-trademarked goods under its Samsung franchise agreement.
Our brief underscored the importance of trademarks as the cornerstone of a franchise system, identifying the product or service to the purchasing public and guaranteeing a uniform standard of quality. A franchise is for a particular trademarked good or service, not for someone else's trademarked goods or services. Manufacturers should not be hobbled by restrictive interpretations of state statutes when transferring assets and intellectual property rights or when responding to changing market conditions. In addition, the state law must be interpreted so as not to diminish or interfere with federal trademark rights under the Lanham Act. The lower court ruling would force Volvo to license its trademark rights to a dealer that had sold its competitor's goods.
On March 4, 2009, the Seventh Circuit overturned the lower court and ruled that the franchise termination statute defines a franchise in terms of a trademark license. Consequently, discontinuation by a manufacturer of a brand line of products is a discontinuation of franchise goods under the statute, and the retailer never had a franchise for goods branded with another name. The retailer cannot claim protection from termination for a franchise it never had.
This is a significant win for manufacturers. The court’s opinion properly recognizes the importance of brand identity in franchise agreements. In light of the tremendous financial strains in today’s economy, the ruling will help avoid litigation that might otherwise make it even harder for manufacturers to compete and survive.