In 2007, Denver-based Icon Burger began using the trade name "Smashburger" knowing the name belonged to a Kentucky company called Dairy Cheer. Since Dairy Cheer was only using the trademark name locally, there had been no issues with both companies using it. Until that is, Icon Burger wanted to expand operations into the Lexington, Kentucky market.
Icon Burger has Smashburger-named franchise restaurants in urban locations in 16 states. Dairy Cheer operates 6 restaurants in rural locations that use the "Smashburger" name for one of their sandwiches. Icon's restaurants use bold red and white signage in a modern-looking structure, while Dairy Cheer uses green and white, both offering a clear difference between the brands.
According to this report, Dairy Cheer had common law rights in the name Smashburger in the area it operates. When a name is used in an area, the company using the name obtains common law rights for it. Had the suit not been settled, Dairy Cheer would have had to prove customers would have been confused between their sandwich's name and the name of the Smashburger restaurants, which could have involved lengthy and costly litigation.
Generally a franchisor performs a search of the trademark register for name registrations in a specific state as well as an internet search to see if anyone is using that name for a similar purpose. If a company misses a use and learns about it later, it should attempt to negotiate a license to use the name in that area, and get the local company to waive any objections to use of the name outside that area. Sometimes a local user might think they have a longer reach with their common law rights than they actually do. All a company can really do is limit another company's use of the name in that area.
After multiple negotiations with Dairy Cheer, Icon Burger offered a lump sum settlement, which was countered by Dairy Cheer. Icon rejected the counter offer and negotiations broke down. Dairy Cheer threatened to sue to prevent Icon's use of the trademarked name and filed a petition to cancel Icon's federal registration of the Smashburger name.
The court docket shows the parties settled, but not the terms of the settlement. Icon Burger's franchise disclosure documents state that "Home of the Smashburger" was registered to them last October.
Source: Blue MauMau, "Smashburger Mysterious Trademark Settlement," Janet Sparks, April 2, 2012