AFC Enterprises, Inc. (AFC), the parent company of the Popeyes Louisiana Chicken fast-food chain, recently filed a declaratory action in the U.S. District Court for the Northern District of Georgia seeking a ruling by the court that AFC will retain the rights to use the “POPEYES” trademark after a licensing agreement with Hearst Corp. — the owner of the rights to the well-known “Popeye the Sailor” cartoon character— expires in December 2012. AFC Enterprises Inc. v. The Hearst Corp., No. 1:11-cv-04150 (ND Ga. Nov. 30, 2011).

AFC operates or franchises nearly 2,000 Popeyes restaurants both domestically and internationally, making it the world’s second-largest fast food chicken chain. According to the complaint, AFC owns 422 trademark registrations for Popeyes-related marks throughout the world, evidencing its use of the marks since the early 1970s. In 1976, AFC acquired an exclusive license from Hearst to use the famous “Popeye the Sailorman” cartoon character in connection with the fast food chain’s business and advertising in the United States. The Popeye character, which had first appeared in a cartoon published in 1929, was duly copyrighted by King Features Syndicate, a unit of Hearst. Although AFC ultimately used the cartoon character as the spokesperson for its Popeyes restaurants for nearly 40 years and only recently began to phase it out in 2008, its website claims that the chain was originally named after “Popeye Doyle,” a character portrayed by actor Gene Hackman in the 1971 film “The French Connection.”

Now, AFC intends to sunset its use of the iconic cartoon character, but has filed the declaratory judgment to ensure that it may continue to use the “POPEYES” trademark in connection with its popular restaurants. The action was likely filed in response to an alleged threat of legal action by Hearst to block AFC’s use of the name beyond the term of the existing license agreement between the parties. The license is set to expire in December of 2012.

In its complaint, AFC alleges that during the course of the parties’ business relationship, Hearst has explicitly and implicitly acknowledged AFC’s ownership of the “POPEYES” trademark through its contracts with AFC. Specifically, AFC claims, the companies’ successive licensing agreements have recognized each party’s respective rights—that is, AFC’s registered trademarks and Hearst’s copyrights of the cartoon character’s image and likeness—and a plain reading of the contracts indicates a clear distinction between the Popeye character and the Popeyes restaurants. As further evidence of this interpretation, AFC points to a provision of the agreement stating that “nothing herein shall be construed to require AFC’s discontinuance of the ‘POPEYES’ mark for [its] restaurant services or food products after this agreement is terminated.”

Nevertheless, AFC’s complaint cites a 2001 letter from Hearst in which the media company’s attorneys claimed that it could assert rights in the “POPEYES” trademarks and that, if the licensing agreement were terminated, “it is likely that a court will prohibit AFC from making any use of the ‘POPEYES’ mark.” In what likely amounts to a negotiating tactic in this dispute, AFC’s complaint seeks a court order recognizing that it is free to use its “POPEYES” trademarks in the absence of a licensing agreement with Hearst, and that it therefore has no obligation to negotiate for or renew its agreement with Hearst if it ceases its use of Hearst’s copyrighted cartoon characters.

This case presents a unique issue regarding the extent to which copyrights and trademarks can become intertwined through cross-marketing. Any business, therefore, should be aware of the risks involved in utilizing another entity’s intellectual property for marketing purposes. Likewise, it is important to consider what will happen upon termination when entering an agreement with a third party regarding intellectual property rights. Arent Fox is continuing to monitor this case. For more information, please contact: