Seattle Trademark Lawyer

On Sept. 7, the Ninth Circuit published a decision affirming in part and vacating in part an arbitrator’s award based on a trademark license agreement. The decision underscores how deferential courts are when reviewing arbitration awards, but that such deference is not unlimited.

In Comedy Club, Inc. v. Improv West Associates, plaintiffs Comedy Club and Al Copeland Investments, Inc., entered into a Trademark License Agreement that granted Comedy Club an exclusive nationwide license to use Improv West’s trademarks. Thereafter, Comedy Club breached the agreement and sought to protect its interests in the trademarks by filing a declaratory judgment action in the Central District of California. The court ordered the parties to arbitrate pursuant to the agreement’s arbitration clause. 

The arbitrator found that Comedy Club was liable for breaching the agreement and entered an injunction enjoining Comedy Club and its affiliates from opening any other comedy clubs and from changing the name of any of their clubs until the Trademark Agreement ended. Incorporating the agreement’s definition of “affiliates,” the arbitrator extended the injunction to include “family members, family members of shareholders, all collateral relatives, former spouses, and all collateral relatives of former spouses.” The court confirmed the award. Comedy Club then appealed.

The Ninth Circuit found the arbitrator acted beyond the scope of his authority when he included family members, ex-spouses, and other persons who did not sign the Trademark Agreement since Federal Rule of Civil Procedure 65(d) limits injunctions to parties, “their officers, agents, servants, employees, and attorneys,” and those persons “in active concert or participation” with them.

As for the substance of the award, the Ninth Circuit found that its review is “both limited and highly deferential” and that it was empowered to vacate the arbitration award only if the award was “completely irrational” or constituted “manifest disregard of the law.” The Ninth Circuit upheld the “basic outline” of the arbitrator’s decision because it could not say the award was “completely irrational.”

That said, the Ninth Circuit found the arbitrator’s ruling enforcing the agreement’s covenant not to compete violated California’s statutory ban on such covenants. Therefore, it vacated the Central District’s order confirming the award to the extent it prevented Comedy Club from opening or operating non-Improv clubs.

The case cite is Comedy Club, Inc. v. Improv West Assoc., Nos. 05-55739, 05-56100,  __ F.3d __, 2007 WL 2556702 (9th Cir.).