Mealey's (August 2, 2016, 8:19 AM EDT) -- FLORENCE, S.C. — A South Carolina federal judge on July 29 awarded Choice Hotels International Inc. triple damages plus $1.18 million of infringer profits in a trademark infringement case against defendants who bought a North Myrtle Beach hotel from one of Choice Hotels’ former franchisees and operated a “virtually identical business with a virtually identical name on the very same property” (Choice Hotels International Inc. v. Zeal LLC, et al., No. 4:13-01961, D. S.C., Florence Div.; 2016 U.S. Dist. LEXIS 99342).
(Opinion available. Document #98-160809-029Z.)
U.S. Judge Bruce Howe Hendricks of the District of South Carolina said the fact that defendants Zeal LLC, Harshil J. Shah, Pranay Parekh, Chhaya Parekh, Rajan Gupta and Monica Garg (collectively, Zeal) “clearly knew” that Choice Hotels owned a trademark for Econo Lodge Inn and Suites when they chose to rename the property with a virtually identical name indicates that they were “willfully blind” to the fact that they were infringing on Choice Hotels’ trademark.
Judge Hendricks denied Zeal’s motion to reconsider his Sept. 29, 2015, ruling granting summary judgment to Choice Hotels and enjoining Zeal from using any of Choice Hotels’ Econo Lodge marks.
According to the Sept. 29 summary judgment ruling, Zeal bought the Myrtle Beach property from Kelley Properties LLC, a former Choice Hotels franchisee. Kelley’s right to operate the property as an Econo Lodge Inn & Suites was terminated before Zeal acquired the property. Nevertheless, it continued to operate the hotel as an Econo Lodge, displaying Choice Hotels’ trademark on a large sign in front of the property.
When Zeal finally rebranded the hotel, it changed the name from Econo Lodge Inn & Suites to Econo Studios Inn & Suites and replaced the Econo Lodge sign with a new sign bearing the new name. Choice Hotels alleged that the modified name still violated its trademark and created a likelihood of consumer confusion.
Judge Hendricks granted Choice Hotels’ motion for summary judgment on its causes of action for trademark infringement and unfair competition under the Lanham Act and common law and a permanent injunction prohibiting Zeal from further use of any of the marks in the Econo Lodge family of marks and for further use of the similar Econo Studios Inn & Suites.
Damages, Infringer Profits
In his July 29 ruling, Judge Hendricks considered whether to triple the damages of $148,225.53 that was the estimated fee that Zeal would have had to pay to Choice Hotels if it continued to operate the property as an Econo Lodge. Choice Hotels argued that it should be tripled to deter similar conduct in the future. Judge Hendricks agreed.
“Plaintiff reasons that would-be infringers will be incentivized to take their chances if the cost of infringement is simply paying the franchise fee that would otherwise be due, particularly if the infringer expects profits to be small or non-existent,” Judge Hendricks wrote. “Accordingly, the Court will treble the $148,225.53 and award Plaintiff $444,676.59 in trademark owner damages.”
In his July 29 ruling, Judge Hendricks said Choice Hotels has established that Zeal’s gross profits for the term of the infringement are $2,366,506.80 and that Zeal has not carried out its burden to establish deductions such as operating costs and expenses that would reduce the amount of its gross profits.
“”Still, given the sizable treble damages awarded, the Court finds it ‘just, according to the circumstances of the case,’ to reduce the amount awarded here by 50%,” Judge Hendricks wrote, citing 15 U.S. Code Section 1117(a). “Therefore, Plaintiff is entitled to $1,183,253.40 of Defendants’ profits.”
Choice Hotels is represented by Theodore Fuller Mitchell and Matthew J. Ladenheim of Trego Hines and Ladenheim in Charlotte, N.C.
The Zeal defendants are represented by Stephen Jahue Moore of Moore Taylor and Thomas in West Columbia, S.C.
(Additional documents available: Complaint. Document #98-160809-030C. Summary judgment ruling. Document #98-160809-031Z.)...