When a restaurant name is licensed, how does the owner properly compute a trademark royalty? Should a higher royalty be set for a famous mark? These issues were decided recently by the New York Supreme Court in Ganzi, Gary C. et al. v. Ganzi Jr. Walter, et al. The inter-family dispute involved several relatives who claim they were excluded from a licensing deal involving the famous Palm restaurant brand, which licensed the Palm intellectual property to other family members at a royalty below market rate.
The facts of the case draw on the history of the famous Palm restaurant. The restaurant was first opened in 1926 by John Ganzi and Pio Bozzi and expanded in 1972 under Bruce Bozzi, Sr., and Walter Ganzi, Jr., (the defendants). The Plaintiffs, Gary Ganzi and Clair Breen and the estate of Chuck Cook, claimed that the company they owned with the defendants licensed the Palm IP extremely cheaply to the defendants’ wholly owned restaurants, cutting out the plaintiffs, who had a minority share of 20%, of a fair share of profits. (The defendants had the majority share of 80%, and so could control the licensing.) Each new Palm restaurant paid a flat fee of $6,000 per year instead of a royalty calculated as a percentage of sales, which is typical in the industry. The defendants claimed that the arrangement had gone unquestioned for over 40 years and it was too late for plaintiffs to complain now.
Ultimately, during a bench trial (that is, before a judge without a jury), the court agreed with the plaintiffs’ expert who attested that, given the fame of the Palm mark, a 5% royalty was fair. This resulted in an award, with interest and attorneys’ fees, of “at least” $120 million. A much lower award of $1.7 million in damages was awarded to the defendants for below-market rents paid by the parties’ company to the defendants.
The court’s decision is interesting not only for the size of the award but for the fact that the court did not find it dispositive that the parties’ arrangement had gone unchallenged by the plaintiffs for decades. Notably, the plaintiffs did limit their request for damages to the period allowed by the statute of limitations, which time-bars any suit brought more than six years after the alleged damage. Therefore, plaintiffs were able to collect only the royalties from 2006. Given the money generated by the Palm, that still resulted in a sizeable award, as 54 license agreements were implicated, even during this limited time period.
To be sure, trademark licenses can be a big revenue driver for a restaurant! Yet another reason to protect your restaurant brand.
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