93 USPQ2d 1263 (1st Cir. Jan. 5, 2010)
The First Circuit affirmed the district court’s summary judgment holding that the settlement agreement between two hair-care companies, releasing one another from “claims that arise from the application and registration” of their respective marks, also applied to the parties’ use of their marks. The court found that the defendants read the phrase “application and registration” too narrowly because trademarks are registered to be used, and that the intent of the agreement was for the parties to agree to the anticipated use of their respective registered marks. The appeals court found support for such construction of the agreement in two of its other provisions, which would not have been necessary if the release was limited to claims arising only from registration issues.
Plaintiff Great Clips, Inc. (“Great Clips”) owns and operates hair salons under its registered GREAT CLIPS mark, while defendants Hair Cuttery of Greater Boston, LLC and Great Cuts, Inc. own and use the registered mark GREAT CUTS for hair-care services and products. More than two decades ago, plaintiff and defendants’ predecessor-in-interest were engaged in an opposition proceeding and, in 1989, they entered into a settlement agreement mutually releasing each other “from any and all claims that arise or may arise from the application and registration” of their respective marks.
When Great Clips took steps in 2008 to open new franchise stores in Massachusetts and New Hampshire, it was advised by defendants of their plans to sue plaintiff to prevent its use of the GREAT CLIPS mark in New England. Great Clips then brought a declaratory-judgment action against defendants, seeking a ruling that it is entitled to use its GREAT CLIPS mark in the United States, that Great Clips’ use of the mark in New England would not infringe defendants’ rights, and that the settlement agreement precluded defendants from asserting otherwise. Defendants asserted counterclaims for trademark infringement, dilution, unfair competition, and other claims.
On cross-motions for summary judgment, the district court rejected defendants’ counterclaims and granted Great Clips’ request for declaratory judgment, holding that the settlement agreement allowed Great Clip to use its mark without geographic limitation. Defendants appealed the ruling.
In their appeal, defendants argued that the settlement agreement only released Great Clips from claims arising from the registration of its GREAT CLIPS mark, but not from claims that arise from its use of the mark. However, the appeals court rejected defendants’ narrow interpretation of Paragraph 4 of the settlement agreement, which stated that the parties are mutually released “from any and all claims that arise or may arise from the application and registration” of their respective marks. Limiting this release to claims that arise in the registration process itself, such as a claim for fraud in obtaining the registration, but not extending the release to any later use of the registered marks, may be a permissible reading of that specific language, but it did not take the agreement’s other provisions sufficiently into account that emphasized the breadth of the precluded claims. Considering the apparent purpose of the agreement, the First Circuit pointed out that trademarks generally are registered in order to be used, and that this particular agreement was aimed not only at allowing one another’s registration of the marks but also their anticipated use. The court further stated that Massachusetts law requires a broad construction of the release’s broad wording (“any and all claims” and “arise or may arise from”) and that the parties had not offered any evidence to the contrary that would suggest that the agreement was intended to be limited to the registration of the marks, and that it was meant to reserve disputes over the practical consequences of registration (e.g., use) for future litigation.
In further support of its interpretation of the release language in Paragraph 4, the court looked to other provisions in the settlement agreement that addressed details of its practical implementation and were consistent with an extension of the release to future disputes about the use of the marks. Paragraph 6 of the agreement stated that, in view of Great Clips’ use of the phrase GREAT CLIPS FOR HAIR, defendants agreed not to use the phrase GREAT CUTS FOR HAIR, with the only exception being that they could continue use of their long-time slogan GREAT CUTS-FOR GREAT LOOKING HAIR AT A REALLY GREAT PRICE. The First Circuit agreed with the lower court that this provision only makes sense as a “carve-out” from a broad release in Paragraph 4 for all other infringement claims arising from defendants’ use of the GREAT CUTS mark; if the release in Paragraph 4 was not to be construed broadly, there would have been no need to preserve Great Clips’ potential claims against defendants over the use of the phrase GREAT CUTS FOR HAIR. The court also noted that Paragraph 7 of the agreement, which allowed each party to bring claims against third parties over the unauthorized use of the other party’s mark, only makes sense if Paragraph 4’s waiver of claims applied to the parties’ use of their own marks. Because the agreement indicated that the parties intended to achieve a comprehensive solution allowing them to use their respective marks as part of conducting their businesses, the First Circuit affirmed the district court’s ruling in favor of Great Clips.
The decision highlights the need to use careful language in all contracts and settlement agreements, and indicates that a release from claims “arising from the application and registration” of a trademark may well be extended beyond mere “application and registration” and to apply to “use” of the mark at issue unless there is clear language or extrinsic evidence that the parties intended to limit the release solely to the registration process itself and to reserve questions over use of the mark for future litigation. Even if the parties had intended to be vague or silent about the issue of use in the release provision, several of their other agreement provisions belied that intention and resulted in an expansive reading of the release.