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From Intellectual Property Law Daily, April 12, 2018

Contempt order affirmed for childcare center’s violation of injunction against mark use

By Robert Margolis, J.D.

The federal appellate court in Richmond, Virginia has affirmed a district court’s order holding the operators of a childcare center in Fayetteville, North Carolina in contempt for violating an agreed injunction order preventing it from, among other things, using the word "rainbow" in connection with that facility. The district court had entered the injunction order as part of a settlement of trademark infringement claims brought by a child care center in Fayetteville that had long operated under the "Rainbow" name (Rainbow School, Inc. v. Rainbow Early Education Holding LLC, April 10, 2018, Agee, S.).

Plaintiff Rainbow School, Inc. ("Rainbow") had operated an independently owned child care center under the name "Rainbow School" in Fayetteville, North Carolina, for more than 20 years. Defendant Rainbow Early Education Holding LLC ("REE") was a nationwide corporation with over 100 childcare centers, all of which used a rainbow logo. REE opened a childcare center that was two miles from the plaintiff’s location, and Rainbow filed suit for common law trademark infringement, as well as claims under the Lanham Act and for state law unfair competition and deceptive trade practices. The parties settled and consented to a permanent injunction. Among other things, that injunction prevented REE from "doing business as ‘Rainbow Child Care Center’ in the Fayetteville, North Carolina metropolitan area," using the word "rainbow" in connection with the Fayetteville facility such as in web domains associated with or linking to the Fayetteville facility or its website, and using a rainbow design on any website specifically advertising the Fayetteville facility. The agreement included a liquidated damages provision calling for damages of $30,000 for a violation of the injunction.

Three months later, the Rainbow filed a motion to hold REE in contempt of court and for an award of damages and fees. Rainbow alleged multiple violations of the injunction based on the Fayetteville REE facility’s website, including its use of rainbow logos in online galleries and the use of the word "rainbow" in domain names, links, and metatags used to drive traffic to the Fayetteville site’s website. The district court grantedthe motion, finding multiple violations of the agreed injunction, and awarded liquidated damages of $60,000. REE appealed.

Injunction violated. Noting that it only needed to determine that the district court did not clearly err in finding that REE violated the injunction in one of the ways alleged, the appellate court affirmed the district court, agreeing that REE violated the injunction in several respects. The appellate court cited REE’s use of "‘rainbow’ in multiple domain names, links, and metatags associated with the Fayetteville facility’s stand-alone website," noting that it appeared approximately 180 times as a link or tag on the Fayetteville facility site. While REE contended that these are "hyper-technical alleged violations of the Court’s order" and were inadvertent, nonetheless the injunction required REE not to use "rainbow" in connection with its Fayetteville facility website. There was no dispute that these violations occurred, or their scope, the appellate court noted, so the district court did not clearly err in finding them.

Harm. The appellate court also found no error in the district court’s finding of harm to Rainbow. Because harm is presumed from trademark infringement, and in the injunction the parties expressly contemplated that a violation would cause harm, the district court correctly found the requisite harm to support contempt. REE’s contentions to the contrary lacked merit because it agreed in the injunction to the entry of judgment as though trademark infringement had been proven at trial. Further, the injunction, to which REE agreed, expressly provided that violation would cause harm to Rainbow.

Damages. The court also affirmed the district court’s damages award, finding that the court was well within its discretion to use as a basis for the award the injunction’s liquidated damages provision, which called for liquidated damages of $30,000 for a violation. Because the district court found that REE committed multiple separate violations, it did not abuse its discretion by awarding $60,000.

This case is No. 17-1055.

Attorneys: Susan Freya Olive (Olive & Olive, PA) for Rainbow School, Inc. Pankaj Kashiram Shere (Cranfill Sumner & Hartzog LLP) for Rainbow Early Education Holding LLC and Ree Southeast, Inc.

Companies: Rainbow School, Inc.; Rainbow Early Education Holding LLC; Ree Southeast, Inc.

MainStory: TopStory Trademark MarylandNews NorthCarolinaNews SouthCarolinaNews VirginiaNews WestVirginiaNews

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