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 »

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 »