There has been a lot of ink spilled recently about the plight of the small businessman in the recession. In particular, there has been a great deal of discussion as to whether franchising as a business model has done relatively better or relatively worse than non-franchised businesses.

There is no definitive answer. If the answer is that franchises have done relatively worse why might that be the case? There are myriad answers from excess liquidity in the capital markets to the simple fact that franchising did so well over the past two decades that it was only natural that it would experience a temporary set-back.

Another possible reason, and the subject of this essay, may be that by its very nature franchising has a greater inherent risk profile due to the fact that franchising necessarily entails the transmission and transference of trade secrets and confidential. Consequently, the more popular a franchise becomes the more difficult it is to maintain its trade secrets and confidential information.

This, in turn, impacts the long term economic health of the franchise. A franchisor therefore makes a bet that it can parlay its franchise system into a profitable venture without losing the value it already has staked in its trade secrets.

So to the extent that the growth of a franchise system impacts the ability of the franchisor to carefully monitor its trade secrets, the financial health of the franchise will be affected. The growth of franchising has not been driven by thousands of uniquely derived and/or recently invented products. The growth of franchising, and the ensuing fragmentation of many markets within franchising, is a direct result of former trade secrets and confidential information being disseminated in the market place. Read the rest of this entry »

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. Read the rest of this entry »

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: Read the rest of this entry »

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. Read the rest of this entry »

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) Read the rest of this entry »

“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 straight 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. Read the rest of this entry »

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. Read the rest of this entry »

No one wants to spend the money to hire an attorney just like no one wants to visit the dentist. But if one is to have healthy teeth one must visit the dentist; and so to if one is to have a healthy business then one must at some point consult a lawyer.

If one’s business is a franchise then it is very wise to consult a lawyer early on in the process, be it the process of starting a franchise or buying a franchise. Franchise law is not easily labeled. It is actually a collection of many different types of law –including agency law, ant-trust law, employment law, contract law, administrative law, trademark and patent law, debtor/creditor law, tort law, trade secrets law, financial services law, and international law.

Everybody loves a good lawyer joke. And people have coffee mugs adorned with the Shakepearean quote: “The first thing we do, let’s kill all the lawyers.” But the fact of the matter is that what everybody loves even more than a good lawyer joke is to be secure in the knowledge that he/she has a good lawyer. Lamentably the cost of legal services has risen significantly in the last decade. This has driven some people to take a pro se approach to their legal needs. Undoubtedly this pro se approach works for many. What is also equally true is that it does not work for a great many others as well. And the aggregate cost to those who failed to spend money on the front-end in forfeited rights and missed business and legal opportunities dwarfs the amount of money that was saved. Read the rest of this entry »

What does the does the arcane socio-economic philosophy of Distributism and the business system of franchising have in common? On the surface it would appear that not only are the two concepts not philosophically similar, any comparison between the two is akin to comparing apples and oranges. Upon further examination of the central tenets of the two, however, it is clear that there are some areas in which the two systems have striking similarities. In fine, the system of franchising has as its bedrock many of the same principles that underlay Distributism. This essay briefly sets forth similarities between the two systems and the importance of recognizing these similarities.

America is experiencing a re-assessment of the belief that laissez-faire, free market capitalism is an unalloyed good. With the collapse of the capital markets in the Fall of 2008, it is beyond peradventure that a certain amount of state controlled economic governance is likely to be the result of what some are calling the “Second Great Depression”. Many on the Left are saying that a critical investigation into the merits of the Austrian school of economics that has held sway over our public policy since the early 1980’s is long over due. While many on the Right say that the problem is not with free market capitalism it is that free market capitalism has not been thoroughly tried; that we have had state intervention in the economy in some form or fashion since the last Great Depression.

One problem with looking at our current economic situation in such a manner is that it is dichromatic—Black or White, Left or Right. Economic dichromaticism is myopic in so far as it blinds one to the possible merits of a third way — Distributism. Simply stated, Distributism holds that the ownership of the means of production should be spread as widely as possible among the general populace rather than being centralized under the control of the state (socialism), or a few large businesses or wealthy private individuals (capitalism). Distributism cannot be categorized as a strictly economic or social or even political philosophy as it is in fact all three. Distributism is best described a policy of a philosophy. Read the rest of this entry »