USDC D. Massachusetts, February 18, 2009

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The district court held that a prior settlement agreement arising out of the parties’ dispute before the Trademark Trial and Appeal Board (TTAB) concerning their respective marks “Great Clips” and “Great Cuts” for hair salons was sufficient to bar the defendant Hair Cuttery’s newly-threatened claims for trademark infringement. After interpreting the terms of the settlement as applying to future disputes concerning the same marks, the district court rejected Hair Cuttery’s assertion that any release in the settlement agreement for future infringement of intellectual property rights was void as against public policy.

In 1989, plaintiff Great Clips entered into a settlement agreement with Dalan Corp. to resolve a trademark dispute before the TTAB. Dalan applied to register the trademark “Great Cuts” in connection with hair salons and products. Great Clips opposed the application and Dalan subsequently filed a counterclaim against Great Clips seeking the cancellation of the “Great Clips” mark.

Under the settlement agreement, the parties agreed to withdraw with prejudice the notice of opposition and the counterclaim, and agreed that “Each party releases the other from any and all claims that arise or may arise from the application and registration of its own respective mark(s) mentioned in this agreement. . . .”

Several years later, defendant Hair Cuttery of Boston, as successor in interest to Dalan Corp., learned that plaintiff Great Clips planned on opening several hair salons in New England using its “Great Clips” trademark. The defendants contacted the plaintiff and objected to its proposed use, and the plaintiff thereafter filed suit for a declaratory judgment that the defendants are barred from challenging the plaintiff’s use of its own trademark.

The court first addressed the issue of the meaning of the language in the settlement agreement. The defendants argued that the agreement barred only claims arising from the “application and registration” of each party’s own trademark, but the plaintiff argued that the settlement agreement was meant to apply to claims arising from the use of each party’s trademark and the court agreed.

The defendants also argued that any release for future infringement of intellectual property rights is void as against public policy. The defendants cited to FASA Corp. v. Playmates Toys, Inc., 892 F. Supp. 1061 (N.D. Ill. 1995), in which the Northern District of Illinois held that as a matter of public policy “a purported waiver of future, unknown intellectual property claims is unenforceable.”

The court, however, noted that other courts have recognized the validity of settlement agreements that surrender the right to bring trademark infringement claims based on the future use of a particular mark, citing Brennan’s Inc. v. Dickie Breannan & Co. Inc., 376 F.3d 356 (5th Cir. 2004), in which the Fifth Circuit “implicitly affirmed the validity of this type of agreement.”

In granting summary judgment for the plaintiff, the court distinguished the case at hand from FASA by stating that the waiver in FASA was for “future, unknown” intellectual property claims, whereas in this case the intellectual property claims are not “unknown”. “In this case, both parties to the Settlement Agreement were fully aware of the existence of each other’s marks and of each party’s use of its own mark in connection with hair salon services. . . . I find that both parties were sufficiently aware of the nature of the infringement claims from which they were releasing the other party that the Settlement Agreement, which contains no geographic limitation, did not constitute the waiver of ‘unknown’ or unknowable claims.”