Rosati Pie Fight results in Preliminary Injunction against Rosati family selling frozen pizza. Michael and William Rosati, individually and on behalf of Rosati’s Franchise Systems, Inc. v. Anthony Rosati and David Rosati et al. 2021 WL 3666432 (USDC ND IL August 18, 2021)
The District Court for the Northern District of Illinois took up a dispute in the Rosati clan. At the heart of the dispute was that two shareholders of Rosati’s Franchise Systems, Inc. (RFSI) wanted to stop two other shareholders for selling frozen pizza through the grocery channel. The RFSI agreement allowed each shareholder to use the trademarks and recipes of RFSI in a specific geographic area. The lawsuit alleged that the frozen pizza business ignored the geographic limitations of RFSI. The Court decided the case giving plaintiff a preliminary injunction finding that (1) plaintiffs would likely win on the merits, (2) that there was no adequate remedy at law and (3) they suffered irreparable harm.
An interesting twist of the case was Board Demand Futility. Plaintiff argued that the had a right to sue in the name of RFSI due to the theory of demand futility. The theory goes that a shareholder may act on his or her own and assume the role of the Board if the Board has been compromised such that it could not, would not act for the good of the corporation. Plaintiffs successfully argued that the Rosatis running the frozen pizza also were essential to another four members of the board because they provided the backbone for the restaurants of four board members.
I think the court missed the boat in this case. The heart of trademark is quality control. In clan Rosati, the IP is owned by RFSI but from what I could make out from the decision, a shareholder can run his pizza business any way he wants in his territory. Now that is counter to all I know about trademark and licensing. Quality control by the mark owner is the essense of trademark. I think the court should have looked at this scene, found out about quality control from the top and, if that was lacking, cancel the registrations ruling that the marks have ceased to have meaning.