It is a documented fact that between the years 2002-2008 a lot of franchises were sold. Not coincidentally this was also the time when the franchise lead generation portals began to proliferate. And so, one could argue, 2002-2008 could be seen as the Golden Age of franchise sales. But with the success of franchising, a smug triumphalism soon began to appear in all corners of the franchise industry—from franchisor to franchise broker to franchise portal. The near sacrosanct idea that the machine of franchising would always move inexorably forward at a steady pace no matter the state of macro-economic environment became commonplace. It was enshrined in the “fact” that franchising had always done better in periods of economic downturns. That has “all changed, changed utterly”–to borrow a phrase from William Butler Yeats. The long hard slog out of the recession has laid bare the ugly truth that franchising is not immune from the macro-economic problems that beset the wider economy.

And so a pressing question is whether there are endemic problems with the current model of franchising? Or, is it simply the fact that although franchising is now understood to not be immune from macro-economic factors the model of franchising is sound and one need only wait patiently for the recovery for franchising to return to the Golden Age, Take Two? I do not pretend to have the definitive answer to this question. I would surmise, however, that the answer lies somewhere in the middle. When the economy turns around and lending purse strings are loosened the sales of franchises will improve. Of that I am confident. At its simplest, most basic form, franchising is an amazingly efficient product distribution model that will contribute to the global economy for the foreseeable future.

With that said, it is hard to envision how and why the future of franchising will look the same as it did in the recent past. Franchising as a business model is only as good as the businesses of which it is comprised. The more franchises that fail the weaker the model becomes in the eyes of the prospective franchisees. And so to the extent that failed franchises are seen more as the rule rather than the exception franchising will have to contend with a back-draft of negative perceptions. While it may be beyond peradventure that in our capitalist system every business that wants to franchise should be allowed to do so, we must remember that franchising does not sit alone on an island. Franchising is held out as being a system that is a cooperative association. It is a private association between the franchisor and the franchisee; but is also a very public association between the franchisor and the larger system of franchising.

Thus the franchise community has an interest in having the perception of franchising remain as positive as possible. Perhaps it is time for the franchise community to be a little more honest with itself as to why some franchises fail and some do not, and what could be done about it to assure that the least amount of harm is done to the industry when franchises fail. Maybe the time has come for the franchise community to acquaint (reacquaint?) itself with the idea that failed franchise systems are deleterious to franchising’s “brand”. One of the hallmarks of franchising is the ability to establish and protect a brand. I would argue that the brand of franchising qua franchising needs to be protected as well. Perhaps it is time for the franchise community to be a little more attentive to what can be done corporately to make certain that the next generation of franchisors will be just as successful as those who came before.

It is by no mean my intention to say that the Darwinian spirit of capitalism should be suppressed in franchising. I am a firm believer in letting the market decide who should stay in business and who should not. With that said, it would be a shame were we to allow backward looking pride to facilitate the system of franchising down a path akin to that of Percy Bysshe Shelley’s “Ozymandius, King of Kings”. That is to say, it would be folly of the highest order to carve in stone any notion that franchising has an indivisible slice of the economic pie of the world economy.

It is quite likely that any individual that practices in the field of franchise law will at some point have a client who generates leads online. Franchise lead generation is the single greatest source for franchise leads as well as franchise sales. The franchise law practitioner would thus be well advised to understand some of the basics of what makes some franchise lead generation sites better than others. If for no other reason then to be able to converse intelligently with their client on matters of such importance. But, it is hoped that the lawyer could also bring to the table a certain dispassionate logic that will enable the lawyer to be able to advise the client on matters that transcend the law.

Toward that end, I provide an essay on website design. It if my belief both as a franchise lawyer and as the President of the largest on-line lead generation company that the analysis below is applicable to all website designs. Even if you do not have occasion to speak to your client about his/her website the analysis below will benefit your own website. As such, you may well want to speak to your website designer and make certain that your own website follows the guidance given below.

Website designers face many of the same challenges as architects of buildings. Both are contracted to design a product that is both functional and aesthetically pleasing for the clients. Both have a multitude of materials from which to construct the end product and a multitude of ways in to use the materials in the construction. The proper balance of form and function must be ever present in both the website designers mind and that of the architect. In the last year or so many website designers have gone to a more minimalist UI (user interface) and UX (user experience) . In many ways, this minimalist approach to website design has the same look, feel, and most importantly, functionality, as modernist architecture. Modernist architecture is characterized by simplification of form and the subversion of the ornate into the structure and theme of the building.

The web is replete with web designers who have “over-designed” websites. Where simple CSS would suffice the web designers have used Flash. And too numerous to count are the sites that are so mind-achingly complex that the user fails to engage the site in the way the designer (and more importantly, the owner) had anticipated. This phenomena is not unlike what can occur when architects “over-design” buildings. It is therefore instructive to investigate whether the movements in building architecture over the last 100 years can be instructive in any manner. Specifically, whether web designers might be able to learn from the modernist architecture movement of the last century. Overly ornate designs; designs without relation to the function of the building and its intended use by its occupants; and designs that evince no understanding of the landscape in which the building was constructed are all “problems” that modernist architects sought to rectify. One such architect in particular was Richard Neutra.

Neutra was a Viennese born architect who attained prominence in America as one of the great modernist architects. He designed many homes in the Southern California area. Homes designed by Richard Neutra combined Bauhaus modernism with Southern California building traditions. Neutra’s houses were dramatic, flat-surfaced buildings placed into a carefully arranged landscape. “Neutra believed that the architect should strive for a response to space and time that may be only fleeting, yet in its intensity becomes truly memorable.”

Neutra studied how occupants used a building and how those occupants flowed from room to room. He based his designs on the needs of the owners and occupants.
Neutra used courtyards, sliding glass doors and walls and mirrors to reflect exterior views; all of which encouraged a relationship between occupants and nature. His designs were complementary to its surroundings. The buildings did not overpower the landscape. Stated simply, nothing was over-designed in a Richard Neutra home. Coves were simple, doors were left untrimmed and landscaping was important but minimal. In a Neutra designed building there was an emphasis on purpose and quality over quantity.

It takes no great leap of imagination to see how similar ideas can be used in website design. To enter a Neutra designed home is to understand immediately the purpose of the home AND the character of its owners. A website should strive for a similar effect. Websites must not be a confusing mess that is nothing more than the result of an ego-driven designer. Less is more.

A designer must strive for the user to use the website effortlessly. The user must use the site in a manner that is both conscious and unconscious. At the point where the user is conscious of having to navigate a site the purpose of the site is perforce vitiated. In the same way that Buddhist meditation requires one to not think about not thinking, the end-user should not think about navigating around the site. The site should offer a feng-shui environment that is purposeful but not apparent. Navigating the site should be organic, and the process should exhibit the same free flow of time and space that a Neutra home exhibited. A website should be designed to satisfy the regular user as well as the one-time user—and this satisfaction should occur in the same way and to the same degree.
Neutra remarked that

A building can be designed to satisfy “by the month” with the regularity of a provider. Or it can give satisfaction in a very different way, “by the moment,” the fraction of a second, with the thrill of a lover.

Web designers would do well to study more closely how exactly he did so.

What does the concept of eternal recurrence and the trademark infringement doctrine of initial interest confusion have in common?   There are only two possible answers to this question:  everything or nothing.  Nothing if the concept of eternal recurrence is wrong.  Everything if eternal recurrence is correct.

Friedrich Nietzsche wrote this of eternal recurrence:

“What, if some day or night a demon were to steal after you into your loneliest loneliness and say to you: “This life as you now live it and have lived it, you will have to live once more and innumerable times more; and there will be nothing new in it, but every pain and every joy and every thought and sigh and everything unutterably small or great in your life will have to return to you, all in the same succession and sequence—even this spider and this moonlight between the trees, and even this moment and I myself. The eternal hourglass of existence is turned upside down again and again, and you with it, speck of dust!”

Would you not throw yourself down and gnash your teeth and curse the demon who spoke thus? Or have you once experienced a tremendous moment when you would have answered him: “You are a god and never have I heard anything more divine.” If this thought gained possession of you, it would change you as you are or perhaps crush you. The question in each and every thing, “Do you desire this once more and innumerable times more?” would lie upon your actions as the greatest weight. Or how well disposed would you have to become to yourself and to life to crave nothing more fervently than this ultimate eternal confirmation and seal?”

Friedrich Nietzsche wrote these words in the Gay Science over 100 years ago.  Eternal recurrence is the idea that every event in the universe necessarily repeats itself exactly an infinite number of times. With respect to individuals, this means that our life has already occurred and will recur exactly the same way, without deviance, over and over and over again. Nietzsche states that eternal recurrence necessarily follows from the theories of eternal time and the conservation of energy and matter.  That is, if time is infinite but the physical world is finite, then there will be a limited number of combinations of the physical world that must repeat endlessly.

He “titled” this aphorism das schwerste Gewicht which means either the greatest stress, greatest weight or greatest burden depending on the translation.   Would that appellate judges in America understand the significance of at least the possibility that eternal recurrence (or some simulacra thereof) exists. According to doctrine of eternal recurrence every second of our lives recurs an infinite amount of times.   In the context of jurisprudence this is particularly profound because of the American legal system’s quite proper adherence to the doctrine of stare decicis (Latin for “let the decision stand”) in which the courts have an institutional prejudice to not overturn prior decisions.    When put into the context of eternal recurrence that means that decisions are eternally left to “stand”.  This should be, in the words of the Czechoslovakian novelist Milan Kunderas, a “terrify prospect”.

In the world of eternal recurrence the weight of unbearable responsibility lies heavy on every move we make.   If this is the case for the mass of men who lead inconsequential lives, how much more so is it for those among us who shape the path of the law?  The answer is infinitely more, and thus das schwerste Gewicht should be recognized for its singular importance.

And so it is that the doctrine of initial interest confusion in trademark law is all the more perplexing given das schwerste Gewicht. The test for trademark infringement typically focuses on the likelihood of confusion at the point of sale, i.e., the likelihood that a consumer will be misled by the unauthorized use of a trademark and purchase goods or services sold by someone other than the trademark owner.  By contrast, initial interest confusion, although dispelled prior to the point of sale, allows a competitor to get its foot in the door with consumers seeking to purchase goods and services sold by both the competitor and the trademark owner.  So by way of example:

a consumer sitting at his desktop one evening types in the keywords “Smith’s Sauerkraut” into his Google search bar. Google returns multiple different “organic” results—the top result being the official Smith’s Saurerkraut site.   But the top paid advertisement reads “Smith’s Saurkerkraut” but has text that speaks of food generally and it links to wilhelmsdogs.com   The consumer hits the link to wilhelmsdog.com.  But he then quickly realizes that he is not at Smith’s Saurkraut and hits the back button whereupon he sees the top organic listing for Smith’s Sauerkraut and follows the link.  20 seconds elapsed from the time the consumer typed the keywords in untill the time he found his way to the Smith’s Sauerkraut site.

A layman looking at this scenario would be hard-pressed to say that Smith’s Saurkraut was in anyway harmed.  But unfortunately the American courts have discovered a disease where none existed and then invented a cure for the non-existent disease.  And so now we have the doctrine of initial interest confusion.  In the example above, it was that 20 second time period where there was the possibility that some confusion existed that the courts now say is actionable.  The fact that no confusion can ever be proven is irrelevant to the doctrine.   Nor is it relevant that the consumer actually found what he was looking for—and did so in less than 20 seconds.  All that matters in analyzing the case under the initial interest confusion doctrine is that there was some possibility that there was momentary confusion.

The problems with this reasoning are manifold.   First and foremost, there is the evidentiary problem as to how you could prove that confusion occurred and who should have the burden of proof.  Unfortunately, some courts have resolved both of these favorably to the Plaintiff.   But on another level you have the issue of factual irrelevancy.   If the consumer found what he was looking for and did so alacriously it is irrelevant that he might have been momentarly confused.   Just as it is irrelevant to most every person alive today that in the 7^th century there might have been a great and bloody battle against two African tribal kingdoms.

And so we have now a doctrine that will be repeated endlessly throughout time based on a possibility that some slight confusion might have occurred.   There is the saying that “hard facts make bad law”.   There are no hard facts in the cases where the doctrine of initial interest confusion is applied.   There is only bad law when it gets applied.   Traditional trademark infringement analysis is well-suited to address any and all actual wrongs.   Eternity is far too long to have to spend with bad law made without even the slight concern for das schwerste Gewicht.

The purchasing of branded or trademarked keywords by an entity other than the owner of the keywords in a paid advertising medium is a practice that commonly occurs.  The extent to which it occurs is impossible to know.   But one can look at the legal landscape and get some idea of the pervasiveness of the practice.   The best indicator of its prevalence is that Google has been vigorously defending a number of trademark suits over the past five years that stem from its Adword product.

Google had proven successful in a majority of the suits but last year Google was delivered a bit of a setback in the case of Rescuecom Corp. v. Google Inc., 562 F.3d 123 (2d Cir. April 3, 2009).   There the Second Circuit reversed the lower court and said that Rescuecom properly alleged that Google’s keyword ad practices constituted a “use in commerce”. Given the fact that Google is fighting so tenaciously the lawsuits filed against it one could assume that the practice is widespread, and Google is making considerable amount of money from it.  The Rescuecom Corp, ruling may have opened the door for many other suits against Google, and revivified others that were “on the mat”.   It is not clear that Google is going to lose any of them, but the momentum has shifted.

Notwithstanding whether Google has any liability, from an on-line marketer’s perspective one should ask the following two questions before diving into the purchasing of another company’s trademarked keyword: is it legal and what are the risks?

As to whether it is legal, stated simply, the law is not settled in this area.  Assuming that there is an enforceable trademark interest, the analysis then turns to whether the trademark was actually infringed upon.   Under the standard infringement analysis, if a party owns the rights to a particular trademark, that party can sue subsequent parties for trademark infringement. The standard is “likelihood of confusion.  The plaintiff would also have to show that the trademark had acquired a secondary meaning, and was used in commerce.

In an advertiser on advertiser suit, however, the courts are looking primarily at what has come to be called “initial interest confusion”.  (Although there are a few district cases that do not reach the initial interest confusion doctrine analysis because the courts held that there was no “use in commerce” in the first instance.)  Unlike the likelihood of confusion test that is found in section 43 of the Lanham Act, the courts created the initial interest confusion test in the 1970’s.   An amorphous legal concept it has generally been used to prove actual confusion by implying the confusion occurred more quickly on the part of the consumer.

In branded keyword suits, the courts have looked to see whether the branded keyword was used in the ad.  If it was not, then there appear to be no plaintiffs who have been successful in bringing a trademark infringement suit—of course that is not to say that suit have not been brought and settled out of court.  If the branded keyword is used to not only trigger the ad but also the branded keyword is used in the advertisement, the few courts that have looked at this issue then determine whether the consumer was diverted from the search in which he was interested, thereby creating possible confusion as to the origination of product.

One of the primary cases in advertiser-on-advertiser (competitor v. competitor) trademark infringement suits is Storus Corp. v. Aroa Marketing Inc., 2008 WL 449835 (N.D. Cal. Feb. 15, 2008).  In Storus, a federal district court held that displaying a competitor’s trademark in an Adwords ad copy constitutes impermissible initial interest confusion, leading to a summary judgment win for the trademark owner. This is one of the few advertiser-on -advertiser search advertising cases where the plaintiff has won the trademark claims.

The commentary on this case from the legal community has generally been rather critical.  See generallyhttp://blog.ericgoldman.org/archives/2008/03/adwords_ad_crea.htm.

It is so because the defense’s challenge is problematic where a court places the burden on the defendant to disprove that consumers experienced initial interest confusion. What the initial interest confusion doctrine requires is for the defense to undertake the task of proving that a “diversion” did not occur.   (As an aside, the initial interest confusion doctrine is a legal example of exactly what Karl Popper was criticizing in science with his exposition on the concept of falsifiability.)

This case is also instructive in so far as the fact pattern demonstrates why these advertiser-on-advertiser cases are not likely to proliferate—it does not make economic sense to do so.   As Professor Goldman points out, in Storus the court determined that over 11 months Aroa (defendant) got 1,374 clicks on its ads (from 36,164 ad impressions, yielding a 3.7% rate). If you value each click at $1/click, Storus could have acquired the “diverted” clicks for $1,374.   $1,374 would amount to a fraction of the cost to litigate a case like this.

Therefore, if one decides that there is a sufficient ROI on the branded keyword purchase one might also reasonably assume that even if one was to receive a cease and desist letter from the trademark owner, the likelihood that an actual suit would result from the infringement is minimal.  At the end of the day, however, if one buys another company’s branded keyword and the trademark name is displayed in the ad and/or copy text there exists a violation of the Lanham Act and one is subject to the penalties set forth in same.

If, however, one wants to roll the dice and ignore the cease and desist letter because there is a tremendous ROI on the purchase of the branded keyword, well, then that is an option.  But it does not come without risks. For at the end of the day, if the ROI is high for the purchase of trademarked keywords then the owner of the trademark has more incentive to see that the infringement cease AND be paid for the damage to its brand.

Franchisee and Franchisor are faced with a similar legal issue: when an employee becomes pregnant what type of work place accommodations may she demand?

The answer to this question depends largely on the individual fact pattern of each case. It also depends as to whether the facts are being analyzed under state or federal law. Broadly speaking, however, under federal law an employer does not owe a pregnant employee special accommodations simply because she is pregnant. At the same time, an employer may not withhold an accommodation that normally would have been granted to a non-pregnant employee simply because the employee is now pregnant.

An analysis of the facts begins with an understanding of the laws that affect and impact the analysis. [For purposes of this brief article, I will primarily analyze the federal laws. A few states such as California have laws that provide additional protection to the employee.] The primary federal statute in this are is the Pregnancy Discrimination Act (“PDA”). Claims have also been brought under the American with Disabilities Act and the Family Medical Leave Act. The PDA is the one most often utilized by plaintiffs. The PDA amended Title VII of the Civil Right Act. In pertinent part the PDA states:

“(k) The terms ‘because of sex’ or ‘on the basis of sex’ include, but are not limited to, because of or on the basis of pregnancy, childbirth, or related medical conditions; and women affected by pregnancy, childbirth, or related medical conditions shall be treated the same for all employment-related purposes, including receipt of benefits under fringe benefit programs, as other persons not so affected but similar in their ability or inability to work, and nothing in section 703(h) of this title shall be interpreted to permit otherwise….

In Armindo v. Padlocker, Inc., 209 F. 3d 1319 (11th Cir. 2000) the plaintiff argued that she was discriminated against on account of her pregnancy when she was terminated in from her job as an entry level clerical employee after three months of probationary employment. The employer contended that the plaintiff was terminated because of her poor attendance record. The court framed the issue thusly:

“The issue, generally stated, is whether the PDA requires an employer to treat favorably a pregnant employee whose pregnancy caused her to miss work, as compared to a non-pregnant employee who missed work on account of a different medical condition.”

The court held that “the clear answer is that the PDA does not require favorable treatment in this respect.” Citing the case of Armstrong v. Flowers Hosp., 33 F.3d 1308 (11th Cir.1994), the court stated that

“although the language of the statute does not address whether employers are required to give favorable treatment to pregnant employees, statements in the legislative history “make it clear that the PDA does not require employers to extend any benefit to pregnant women that they do not already provide to other disabled employees.” See Armstrong, 33 F.3d at 1316-17. In support of its holding, the panel cited the Seventh Circuit case of Troupe v. May Dept. Stores Co., 20 F.3d 734, 737-39 (7th Cir.1994), drawing from it the principle that while the PDA requires the employer to ignore the pregnancy, the employer need not ignore absences, unless the employer likewise ignores the absences of nonpregnant employees.” [emphasis added] See Armstrong, 33 F.3d at 1317. Read the rest of this entry »

The International Franchise Association spoke out against a ruling by U.S. District Court of Massachusetts Judge William G. Young.

The ruling in question defines Massachusetts franchisees not as business owners, but as employees of their franchisors.

According to the IFA, this decision will have a severe impact on the ability of franchise businesses to operate, create jobs and provide economic output to the state.

“Franchising is a significant source of small business activity in the Commonwealth and has greatly increased small business ownership, particularly among women and minorities,” said David French, IFA vice president of government relations. He said the ruling “threatens the viability of franchising as a business model in Massachusetts and will likely lead to franchise companies ceasing operations.”

French also said that the 16,000 franchise businesses in Massachusetts create 300,000 jobs and $37 million in economic output.

The association claims that Judge Young’s ruling could be used to question the legitimacy of every business relying on contractually related firms as sources of revenue.

The IFA has released other statements recently about legal decisions that impact the franchise industry.

Last week, the association pushed for the rejection of the healthcare reconciliation package that was being debated in the U.S. Senate, saying it would put the cost of reform on the backs of small businesses.

Last summer the Georgia Supreme Court in Atlanta Bread Co. v. Lupton-Smith held that covenants not to work for a competitor or perform competitive acts during the course of employment were subject to strict scrutiny. In Georgia, application of a strict scrutiny review makes it considerably more difficult for an in-term covenant to be enforced by a Georgia court.

The Court stated : “Appellant contends that the clause at issue is a “loyalty provision” and not a restrictive covenant such that it is not subject to being scrutinized for its reasonableness as to time, territory and scope. We disagree. A plain reading of the clause shows that it prohibits the franchisee from engaging in a certain type of business during the term of the parties’ agreement and, thus, it is a partial restraint of trade designed to lessen competition. Such restraints, no matter the nomenclature assigned to them, are disfavored in this state as a matter of public policy…. When such restraints are found in franchise or distributorship agreements, our jurisprudence has held time and again that these restraints are subject to strict scrutiny, receiving the same treatment as non-competition covenants found in employment contracts… “A non-competition covenant entered into in connection with a franchise or employment contract is enforceable, but only where it is strictly limited in time and territorial effect and is otherwise reasonable considering the business interest of [the party] sought to be protected and the effect on the franchisee.” [internal citation omitted]. 285 Ga. 587 (2009)

According to data supplied by FranchiseOpportunities.com and FranchiseSolutions.com Georgia ranks as the 5th most popular state for prospective franchisees. Consequently, given the importance of Georgia to the franchising world this case is particularly important for the entire franchise community and the reason why the IFA filed an amicus briefs in the case. This ruling is perhaps of even greater importance and scope to the franchise community than it might appear on its face because it would also apply to the in-term non-compete agreements that many franchisees have in place with their employees. Unless in-term provision contain precise limitations on geography and scope of activity they will be invalidated. And, since Georgia courts “blue-pencil” employment agreements, the presence of an unenforceable in-term covenant in any employment agreement in any business will invalidate any other non-compete or non-solicitation covenant contained in the agreement.

Thus the franchisee must also be cognizant of any limitations it attempts to place on its employees in its employee agreements. So what might appear at first glance to be a slam-dunk ruling in favor of the franchisees might at some later date be used franchisees by their own employees.

“Out here a man settles his own problems”–Tom Doniphon from The Man Who Shot Liberty Valance.

While it may be true that the civil court dockets have seen a increase in activity on account of the recession it remains the case that for many disputes the courts are not being utilized to the degree intended by the legislature. Whereas the judges bemoan the “clogging” of the state court calendars the “small claims” calendars are many times underutilized by small business as far too many a small business simply writes off debt without attempting to collect through the courts.

In many instances if the claim is under $10,000 the business makes the sound economic decision that it makes little sense to pay a lawyer thousands of dollars simply to just to get the chance to collect the money that is already owed to it. And so many a small businesses turns their over 120 day aged receivables list to a collection agency where the small business will only have to pay if, and when, any money is ever collected. The problem with this scenario is that while any one $10,000 claim may not bankrupt a small business enough thousand dollar bad debt accounts strung together over a couple of year period will retard the growth of the company by lessening cash flow. While collection agencies are an option (although the statistics clearly show that collection agencies at best collect on 25% of the bad debt accounts) they are not always the best option. Collection agencies control the process. There is little, if any, involvement, by the small business. Granted, that is one of the benefits to the turning over collectables to a collection agency. But the control of the case that one would have with hiring an attorney is all but gone once the cases is assigned to the agency. Read the rest of this entry »

E-mail is ubiquitous. And it is here to stay. But regardless of whether you are a luddite or “crackberry” junkie the rules surrounding the use of e-mail for commercial purposes can be confusing. Lawyer, franchisor, and franchisee alike are familiar with the relatively strait forward requirements of the CAN-SPAM Act. But the federal government is not the only e-mail sheriff in town, so to speak. In fact, there are more than 35 other state sheriffs–all of whom have laws and rules about commercial e-mail marketing.

I recently posted a blog at iMedia Connection regarding the the state anti-spam statutes. Many of these state statues are simply restatements of the CAN- SPAM Act. But more than a few go beyond the rules set by Congress in the CAN- SPAM Act and in doing so impose additional burdens on e-mail marketers. With a federal statute and no less than 37 state statutes, how should a responsible e-mail marketer approach his job? The answer revolves around who has the right to bring an action, should an e-mail marketer run afoul of anti-spam legislation.

I wrote the blog entry at iMedia Connection with e-mail marketers in mind. But given that e-mail is put used more and more by franchisors and franchisees, and the fact that these anti-spam rules impact our entire economy, I thought it might be helpful to link to it here. Spam Litigation: A Guide for E-mail Marketers

Georgia continues to be a hot-bed for franchising. Of the more than 75,000 prospective franchise owners that submitted their information to the Franchise Opportunities Network in 2009 the number submitting from Georgia ranked 5th nationally. Thus the laws related to transacting business in Georgia should be of an elevated interest to both current franchisors/franchisees and prospective franchisors/franchisees. Toward that end, one case in particular caught my attention last year.

In the case of Wachovia Ins. Servs. v. Fallon, 299 Ga. App. 440 (2009) the Georgia Court of Appeals took up the issue of whether a customer/client list was protected under the Georgia Trade Secrets Act, OCGA § 10-1-760. The facts presented at trial showed that Fallon left his job with Wachovia and went into business for himself in the same line of work. Wachovia alleged that Fallon misappropriated Wachovia’s client list and thereafter profited from the list to the Fallon’s benefit and Wachovia’s detriment.

The Court pointed out that in order for a client/customer list to be given protection as a trade secret under OCGA § 10-1-761 the information must

(A) Derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and

(B) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

Wachovia sought to obtain relief inter alia under Georgia’s trade Secret Act.

The interesting part of the opinion was the Court’s ultimate determination that because the client list was obtainable from sources other than Wachovia, Fallon could not be said to have missappropriated the information under Georgia law. Specifically, the Court held:

“In order to prevail on its claim regarding misappropriation of this client contact information under the Georgia Trade Secrets Act, Wachovia Insurance must show that the client contact information in its former employees’ Blackberries was a “list of actual or potential customers or suppliers which is not commonly known by or available to the public.” OCGA § 10-1-761 (4). The record shows without dispute that a public website titled “freeERISA.com” contains all of the information about the customers of an employee benefit broker such as Wachovia Insurance, including the name and contact information of the customer’s decision-maker. Indeed, a Wachovia Insurance representative (Benjamin) testified that “all of the employee benefits work that Wachovia Insurance Services does in Atlanta” could be obtained from this website. He described it as “a great prospecting tool to go out and find out who might be writing an account.”

Going forward franchisors and franchisees need to be aware that clients lists that they assume to be protectable under Georgia law might well not be. For if the party who “misappopriates” the client list can demonstrate that the list was readily obtainable from some other source, then the company may not have a colorable claim in Georgia under Georgia Trade Secret Act.