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Feb 13
Love0

Have You Considered Going International?

By Newsletter

Many Franchisors ignore the thought of Foreign Expansion, believing that their U.S. market poses more than enough challenge. They reason that their hands are full just trying to ward off problems in this country, much less taking their concept to foreign shores. But BEWARE. If your franchise is successful in the U.S., you can bet there are foreign competitors looking at your concept to replicate it overseas. In fact, if you look at the website for “Hungry Jack’s” in Australia, you will find it looks familiar to the “Burger King” concept in the U.S. They even have a “Whopper”. Years ago, an enterprising Australian company snapped up much of the “Burger King” concept. After a successful run without Burger King being able to stop the replication, the company is now part of the international Burger King Corporation.

Franchising is booming overseas! There are new foreign franchisors springing up every day. Just like U.S. franchisors, foreign franchisors are looking to expand in the U.S. A good example of this is occurring in the restaurant field – Hispanic eateries are coming to America. Their initial in-road is to capture the Latino immigrants in this country. But ultimately, all these chains aim to compete with U.S. restaurants for mainstream consumers.

For the U.S. Franchisor, global markets may prove much more accessible than in earlier years. Finding information about retail trends in international markets has a multitude of websites which can provide franchisors with a vast assortment of information.

Today’s technology enables Franchisors to respond quicker than ever before. When an inquiry comes in from overseas, do you have a plan to respond?  More often than not, U.S. Franchisors attempt to react and end up in a quagmire trying to dig their way out of legal and cultural differences. U.S. Franchisors should welcome the opportunity to expand overseas. In addition to building BRAND awareness, it opens new untapped markets and, with the recognition your company will receive, it also opens new doors in this country.

Don’t wait and be caught flat-footed. Start now to develop a plan and begin evaluating the viability of going overseas. From the legal standpoint, Duell Law will help you look at the different methods of franchising when going international. Next, we help you review foreign laws and work with you in developing a legal plan to make your overseas launch successful and not a regrettable one. After your legal plan is in place, we will work with you and your team to evaluate the financial and personnel resources necessary for your launch.

CONCLUSION

A Franchisor’s vision that started in this country can make the same impact overseas by laying a solid foundation through proper planning.

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Jan 03
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Franchise Associations: The Good, The Bad and The Ugly

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In determining whether franchise associations will benefit or undermine a franchise system one must first determine the manner in which the association is to be organized and secondly, the purpose behind the proposed formation. Generally, franchisee associations are either formed by franchisees themselves, primarily for their own interest, or they are formed by the franchisor, primarily for the franchisor’s interest first and secondarily that of the franchisees.

The Good

If a franchise association is being formed by the franchisor rather than franchisees, the association is customarily denoted a Franchise Advisory Council (“FAC”). As the name connotes, FAC’s are purely advisory. Organizational, communication, travel and other expenses are normally paid by the franchisor. Franchisors considering whether to form a FAC usually look for the best and most loyal franchisees to be on one or more committees to advise the franchisor on topics such as marketing, new product development, reporting and operations. FAC’s are a good mechanism for franchisors to obtain valuable input from prime franchisees. Because franchisees feel that they are a team member and their contribution is meaningful (which it should be), the FAC members normally give the franchisor their endorsement which in turn draws the support of the entire franchise system.

The Bad

When an association is formed by franchisees rather than the franchisor, the franchisee association usually involves a conflicting economic interest with that of the franchisor. Franchisees sometimes find that by pooling together their resources they jointly have a much louder and stronger voice. As a result, a franchisor is much more apt to listen and address complaints of franchisees. Unfortunately, for many franchise systems, franchisee associations formed to address a single issue common to the system expands to include a wide range of issues, including issues that might have otherwise been addressed by a FAC. An example of this change of direction occurs in the franchise system discussed in an article appearing in the magazine, Franchise Times. The story is about a franchisee association initially formed for the sole purpose of helping franchisees survive a number of lean financial years. After the franchisees were again profitable, the franchisee association changed its purpose and became primarily concerned with decoupling the franchise brand from that of the franchisor’s parent company. Neither franchisor nor franchisee could ever have foreseen the total change of direction.

The Ugly

The ugly referenced in our title occurs when politicians and academia get involved. Today there is growing sentiment that franchisee associations should be treated like labor unions and be granted an antitrust exemption. With this type of protection franchisee associations could engage in collective bargaining and be free to negotiate royalties, advertising fees, operational issues, termination rights and many other facets of the franchise system.

Like so many aspects of franchising, the decision of whether associations should be allowed in your system depends upon the intent of formation. Before agreeing to an association contact our firm. Together we can look at the legal ramifications pertaining to an association. Perhaps it may be more important to be proactive and form a franchisee advisory council yourself, or address the specific issues without even having to address the formation of an association. The choices you make can mean a win-win for all parties or the ultimate demise of your entire franchise system.

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Dec 04
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Promotional Contests: Winners or Losers?

By Newsletter

Traditionally, consumer promotions featuring games of chance, lotteries and sweepstakes have generated new sales and given Franchisors increased brand name recognition. In fact, an article in The Wall Street Journal noted sweepstake sites were a growing segment of the Internet. Sounds like a winner doesn’t it? It can be a winner if your company follows the rules.

Almost every state has codified a set of rules to regulate promotional contests. At the federal level, various agencies are empowered to initiate enforcement actions where prize, chance and consideration are inherent in the contest.  Internationally, our neighbors to the north in Canada prohibit any pure game of chance. In Latin America countries like Mexico, Brazil, Argentina, Venezuela and Columbia, promotional contests require prior governmental approval. This is also true of many European and Asian countries.

In a world filled with complex governmental regulations and judicial decisions, which vary from one area to the next, is there a “bright-line rule” to guide us? Fortunately, the answer is yes. As a general rule, to fall within a regulated activity the promotion must encompass each of the following: 1) a prize; or 2) chance, with mandatory consideration. A prize usually connotes anything of value awarded to the contestant. The value only has to be minimal. Thus, even discount coupons awarded may be sufficient to fulfill the definition. Chance refers to some random means of determination.  Perhaps the most striking example of this random determination is the Reader’s Digest and Publisher’s Clearing Sweepstakes. Consideration may be the most unsettled area of the “bright-line rule” because one would normally believe it had to be in a monetary form, for example, the purchase  of  a  product. This  approach  is actually followed in the majority of states. But there are several states that have taken the approach that the consideration may also be non-monetary. In these states the mere completion of an informational questionnaire may trigger the state’s definition of consideration.

To ensue compliance with our “bright-line rule,” creative marketers have skillfully crafted contests which focus on eliminating either chance or mandatory consideration. By making the contest a game of skill, the contestant is judged on their ability to perform an act. For instance, a contest involving “trivia” judges a contestant on their ability to correctly answer questions, thus the element of chance is eliminated. The second method commonly used is the elimination of mandatory consideration. By offering consumers a choice, the criteria of “mandatory” is eliminated. We all have seen this approach in the Pepsi and Coca-Cola games of chance or in any number of franchised fast food restaurant games. The customer is provided a game card when they make a purchase, but the contest also allows anyone to send off for a free card without any purchase. Thus, there is an alternative means of entering the promotional contest without any required purchase – no mandatory consideration.

CONCLUSION

Promotional contests can be a big winner for your franchise company and your franchisees if you have properly planned in advance. Begin your plan by making sure franchise legal counsel is a part of your planning team. A well-laid plan will make your company a winner rather than the next defendant in a lawsuit.

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Nov 02
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2016 Annual Legal Checkup

By Newsletter

We all acknowledge the importance of seeing our doctor annually for a physical checkup. Unfortunately, when it comes to the well-being of your franchise business, many companies never consider the importance of an annual legal checkup. If you are not reviewing documents or systems yearly, then new technology, new legislation or changing case law among other factors, may put your franchise business at risk.

Statistics show that most franchise systems which fail, do so within the first five years, principally for one or more of the following: undercapitalization; poor operations; lack of training and support; selling franchises for survival; lack of the skills required to be a successful Franchisor; or, looking only at the short term rather than building for the long-term. All of these failure precepts are likely to result in litigation against the franchise entity and against the principals and franchise sellers of the Franchisor, who are likely to be sued individually by the disgruntled franchisees. Without question, such litigation can be avoided by the company regularly consulting with its franchise attorney to provide advice and guidance in advance of any legal entanglements.

The need for a legal checkup is not just for the new Franchisor. For the mature Franchisor to be successful, there must be constant innovation and change. Change facilitates resistance from franchisees and requires close legal support from the planning stage through the implementation of the change.

A clear example of change occurred when McDonald’s added breakfast to its franchise system. Suddenly franchisees were faced with increased cost, not just for additional equipment, but new labor cost and having to manage a whole new process.

Without legal input prior to implementing the modification, McDonalds would have been in court for years from suits by their own franchisees.

In a field so seemingly narrow as franchising, it is always interesting to me that few law students and law professors have ever heard of and many, perhaps the majority of practicing lawyers, likewise have no awareness of and do not recognize the field of franchise law and the fact that there are so many subcategories of the law to consider. Franchising is filled with numerous subfields starting with the law of contracts and includes the core of franchising, trademarks, trade secrets and copyrights. Always present in franchising are antitrust issues, changing laws, litigation and the rapidly developing areas of joint liability and ostensible agency. From the initial prospect package through the termination of a dissident franchisee, a Franchisor’s records, information and processes should be reviewed no less than annually and, when necessary, updated, modified or changed to meet legal requirements. 

CONCLUSION

Does your company conduct an annual legal checkup? Will you be one of the casualties when the list of former franchise companies is posted? How successful do you want to be?

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