Similar Trade Names Violated Competition Clause

Facts: A shoe store tenant signed a 10-year lease with a mall. Under the lease, the tenant was required to pay minimum monthly rent plus 5 percent of its annual gross sales over $1.1 million. A “kickout” provision in the lease allowed the tenant to terminate it early if the gross sales did not exceed that amount in the fifth year of the lease. However, the tenant's right to terminate the lease was contingent on the tenant having continuously operated “using good faith efforts to maximize its gross sales throughout the first five years of the lease term.”

During the fourth year of the lease, the tenant opened a second shoe store under a different trade name in a shopping center 400 feet away from the mall. After the fifth year of the lease, the tenant sent the mall manager a letter stating that it intended to terminate the lease under the kickout provision because its sales had not exceeded $1.1 million that year.

The mall manager responded that the tenant was not entitled to exercise the kickout provision because it was in default of the “competition” clause in the lease by operating the second shoe store in the center. The tenant argued that the second shoe store did not compete with the tenant's original store because the trade names of the two stores were not substantially similar. It vacated the store in the mall and stopped paying rent.

The mall sued the tenant for breach of the lease, asking the court for a judgment in its favor without a trial.

Decision: The court granted a judgment in favor of the mall without a trial.

Reasoning: Because the phrase “substantially similar trade name” appeared in a clause in the lease addressing competition with the tenant, it was relevant to consider the probable impact that a trade name would have on shoppers, according to the court. The court agreed with the mall's argument that the tenant and the second shoe store had substantially similar trade names that caused competition for customers. The court disagreed with the tenant's argument that its operation of the second shoe store in the center did not constitute a lack of good-faith effort to maximize sales in the mall store because the two stores “targeted different shopping demographics.”

To establish a breach of the lease, the mall had to show that a lease existed, the mall performed its obligations under the lease, the tenant breached the lease, and the mall suffered damages as a result.

The court concluded that the trade names were substantially similar because the essential elements of both names were the word “shoe” followed by another four-letter word in all capitals—that is, “show” and “dept.” While the words “show” and “dept.” do not mean the same thing, when paired with the word “shoe,” they both suggest a place where a person could buy shoes, the court pointed out. Moreover, the “intended audience of shoppers would likely interpret the two names to mean essentially the same thing—this is a store that sells shoes,” the court noted.

Additionally, the names appeared very similar on the front of the stores even though the tenant's name contained three words while the second shoe store contained only two, because they were written using similar fonts and in comparable proportions, the court stressed. The court concluded that because the trade names were similar in structure, meaning, and appearance, they were substantially similar and suggested to shoppers that the two stores were essentially the same.

The court decided that because the tenant was operating a shoe store within two miles of the mall that was competing with the tenant because of its similar trade name, it was not entitled to terminate the lease under the “kickout” provision, and its failure to make rental payments constituted a breach of contract.

• Almeda Mall, L.P. v. Shoe Show, Inc., et al., June 2010