Business litigation often arises over seemingly trivial matters. Consider a recent decision by the U.S. Second Circuit Court of Appeals in New York. The case involves the well-known Japanese restaurant brand Benihana. More specifically, this is a dispute between two Benihana corporate entities over the licensing of trademarks.
Benihana, Inc. v. Benihana of Tokyo, LLC
Although the name sounds Japanese, Benihana is a purely American company. The company's first restaurant opened in New York City in the 1960s. In the 1990s, Benihana divided into two entities, Benihana America and Benihana of Tokyo. Benihana America has the territorial rights over Benihana restaurants in the United States, Latin America and the Caribbean; Benihana of Tokyo has rights over all other territories.
The lone exception is Hawaii, where Benihana of Tokyo operates a restaurant in Honolulu under license from Benihana America. This license is subject to New York contract law. Of note here is that the license provides Benihana of Tokyo may not sell any menu items at the Honolulu location without permission from Benihana America.
In 2013, following a takeover of Benihana America, the company learned Benihana of Tokyo was selling hamburgers at the Honolulu restaurant. Benihana America objected to this and demanded Benihana of Tokyo remove the offending hamburgers from its menu. Benihana America sent two more notices without a response from Benihana of Tokyo.
The licensing agreement between the two companies mandated arbitration in the event of a dispute. Benihana America formally moved to initiate arbitration in January 2014. Benihana America noted Benihana of Tokyo was still selling hamburgers at the Honolulu restaurant despite promises to stop. (At one point, Benihana of Tokyo argued it was actually selling a “fried rice dish” that just happened to include hamburgers.) Benihana America accordingly sought to terminate Benihana of Tokyo's Honolulu license.
In support of its arbitration, Benihana America also asked a federal judge in Manhattan to issue a preliminary injunction preventing Benihana of Tokyo from “selling hamburgers or other unauthorized food items” in Honolulu until the arbitration was resolved. Benihana America also wanted an order prohibiting Benihana of Tokyo from asking the arbitration panel for additional time to remedy the alleged breach of the agreement. A U.S. district judge granted both orders in February 2014.
Benihana of Tokyo appealed. On April 28, the Second Circuit agreed with the district court on the first issue but not the second. That is, the district court was right to issue an injunction ordering hamburgers off the Honolulu menu; but the judge exceeded his authority when he limited the scope of Benihana of Tokyo's defense before the arbitrator. Because the parties' agreement requires arbitration of all disputes, the appeals court said it is up to the arbitrator to decide whether Benihana of Tokyo is entitled to additional time to cure the alleged breach of contract. The role of the courts here is limited to “preserving the status quo pending arbitration.”
No Such Thing as a Small Business Dispute
It may sound ridiculous two large, sophisticated companies would duke it out in federal court over hamburgers. But licensing agreements are an integral part of many businesses, and their enforcement is no small matter. If you are involved in a licensing or similar contract dispute and need the assistance of an experienced New York business attorney, contact our offices right away.