Franchise Lawyer Blog

One of the interesting and frustrating things about practicing franchise law is the dizzying manner in which the law is evolving. Because the franchise model extends into virtually every industry, the legal developments come in every conceivable area of practice. It is very difficult for the practitioner to remain current. Here are a couple of recent developments in insurance and antitrust, for example:

Alvord Investments LLC v. The Hartford Financial Services Group, Inc., et.al. 660 F.Supp 2d 850 (W.D. Tenn.2009) stands for the proposition that a franchisor will not be covered under its Directors and Officers policy for a franchisee claim where the policy contains broad language that excludes coverage for claims arising in any way from any franchisee in any capacity. In this case the coverage was denied even though the claimant was no longer a franchisee, the court reading the language to apply the exclusion even to former franchisees. Franchisors should examine their policies and the endorsements contained therein to confirm they are covered for claims by former or current franchisees, or claims arising from their relationships with their franchisees.

Antitrust law is a complex and changing area of the law with respect to franchising. We have previously discussed the impact on franchisors of the re-evaluation of vertical minimum price agreements in the context of the 2007 Leegin case. We read a recent case that sheds some light on the confusing subject of illegal tying arrangements.
An illegal tying arrangment is created when a party agrees to sell one product on the condition that the buyer will also purchase another different product. This is illegal under the Sherman Act where the the seller maintains "market power" in the tied products market.
In the case of Burda v. Wendy's Int'l Inc., Bus Franchise Guide (CCH) #14,240 (S.D. Ohio Sept. 21, 2009), a Wendy's franchisee claimed that the required purchase of food supplies from a Wendy's subsiduary was an illegal tied product, the "tying product" being the sale of the franchise. The court focused on an evaluation of market power based upon a "lock-in" theory; that is, once the purchaser acquired the franchise, did it become locked in to purchase the tied products and was this policy known at the time of the sale. The court found that the claim was valid if Wendy's had not revealed the requirement at the time of the sale of the franchise. If the franchisor puts the franchisee on notice of exclusive purchase requirements prior to the time the franchise is sold, the claimant would be unable to establish a "lock-in" claim.
The decision gives specific language that would serve as appropriate notice. If the franchisor states in its FDD and franchise agreement that it may decide in its sole discretion to require franchisees to purchase exclusively from the franchisor and approved suppliers, then the illegal tying antitrust claim can be avoided. The disclosure of exclusive supply arrangements should be made in the FDD in any event; the avoidance of antitrust claims makes their inclusion even more compelling.

Like many people over the age of twentysomething, I have stumbled clumsily into the arena of social media: Twitter, Facebook and other social networking sites and vehicles. Our teenage children have effortlessly adopted multiple forms of interpersonal communication, so much so that an actual phone call has become rare. Information is exchanged via Facebook, text messaging and Instant Messaging. There are signs that the same migration of the flow of information will happen in the world of commerce.
I recently read a piece in Franchise Times by Gini Dietrich of Arment Dietrich Public Relations that offered some advice on social media in franchising from B.J. Emerson of Tasti D-Lite. The discussion concerned different forms of social media and the advisability of outsourcing the use of those media. The consensus seems to be that using Twitter and Facebook, for instance, to develop business is an inevitable development that should be cautiously embraced if one intends to successfully take one's business into the 21st century. The bottom line appears to be this: the most powerful source of business leads has always been word of mouth. Social media are a concrete means of generating and directing word of mouth in a way that has never been achievable before. You have to look into it.
Mastering these tools is a very different story. Twitter is a wildly unmaneagable tool and the sense is that the entire business commmunity is still learning how to use it. Similarly, Facebook Fan Pages are being introduced by companies every day, but both this and Twitter are in an exploratory trial and error phase.
More commonly accepted methods of obtaining internet based leads, such as Google Adwords, are widely in use. I recently did a Google search under the word "Franchise." Pages upon pages of links appeared (including one for this firm), some of obvious initial use and others not so. Blind searches are a difficult way to go. You must carefully scrutinize the leads that are developed in that manner, particularly by checking out websites.
There are interesting places to go for online information and possible contacts. For example, you can look at BlueMauMau if you are a franchisee and The International Franchise Association (IFA), if you are a franchisor. The former offers information and advice in an open forum, primarily geared to franchisee cautionary tales. The IFA has long been viewed as the unoffical spokesperson for the franchisor community and is a valuable source for information, although its bias must be taken into account.
Proceeding blindly into cyberspace because everyone else is doing it is not a particularly wise business plan. What should be done is what I frequently advise clients to do when they come into my office with pre-determined legal needs. Take a step back and make a reasoned determination of what your most immediate needs are. If, for instance, you want people to find you on the internet when they are looking for a plumber, then you could invest some money on Google Adwords keyed to plumbing (plumber, leaking pipes, etc) to increase the possibility that somebody will stumble upon you. More importantly, you should revise your website so that it does not try to be too much to too many people. Accentuate your plumbing expertise. And then perhaps look into setting up a Facebook Fan Page and see if you can find a couple of satisfied customers to tout it on their Facebook. You could even open a Twitter account and start talking about plumbing and how you deal with problems that you know people have (in 140 characters or less).
Keep in mind that if you left school as long ago as I did, you will always feel like a dinosaur. Particularly if your children have rejected your "friend" requests on Facebook. But better to be a somewhat tech savvy dinosaur than an extinct one.