Comedy Club v. Improv West Associates

Comedy Club, Inc. (Comedy) (plaintiff) executed a trademark license agreement with Improv West Associates (Improv) (defendant), granting Comedy an exclusive nationwide license to use Improv’s trademarks in opening new clubs. The trademark agreement provided that Comedy was prohibited from opening any non-Improv clubs during the agreement’s term and that it would open a certain number of new Improv clubs each year. The agreement also contained an arbitration clause stating that all disputes related to the agreement would be arbitrated. Comedy failed to open the requisite number of clubs, and Improv pulled its trademark from Comedy, opting to open its own Improv clubs. In response, Comedy filed a complaint in federal district court, seeking a declaration that the trademark agreement’s prohibition on opening non-Improv clubs was void under the California Business and Professions Code (CBPC), among other claims. The district court ordered the parties into arbitration. The arbitrator issued an award stating, among other findings, that the agreement’s bar on Comedy’s opening of new, non-Improv clubs was a valid and enforceable covenant to not compete. The district court affirmed the award, and Comedy appealed to the Ninth Circuit. The Ninth Circuit ruled on several different claims and, regarding the bar, found that the arbitrator’s enforcement of the noncompete covenant was a manifest disregard of the law. The case was appealed to the United States Supreme Court, which remanded back to the Ninth Circuit on the issue of the noncompete covenant in light of recent caselaw. The Ninth Circuit reasserted its rulings on the other claims and addressed its previous finding of the arbitrator’s manifest disregard of the law.