Mar 15, 2013

Franchisees Bound by Arbitration Clauses

The U.S. Court of Appeals in Boston found that a group of janitorial business owners, who became franchisees as transferees of franchise agreements, had adequate notice of the arbitration provisions contained in those agreements prior to their transfer.  Thus, the court ruled that the franchisees were required to arbitrate their myriad claims against the franchisor. The transfer agreements executed by the franchisees incorporated the arbitration clauses by reference, and each of the franchisees had guaranteed the performance of “all responsibilities, duties, indebtedness and obligations of the [previous [f]ranchisee] under the [Franchise] Agreement.”  While the franchisees argued that it would be… Read more

Mar 10, 2013

“Sugary Drink” Ban – New York

A state judge invalidated New York’s so-called “sugary drink” ban, which was to come into effect on March 13, 2013, holding the regulation to be “arbitrary and capricious.”  The new law would have banned sales by food service establishments of “sugary drinks” larger than 16 ounces in the City of New York.  The law utilized an expansive definition of “sugary drink,” to include any carbonated or non-carbonated beverage that is (i) non-alcoholic, (ii) sweetened by the manufacturer or establishment with sugar or another caloric sweetener, (iii) has greater than 25 calories per eight fluid ounces of beverage; and (iv) contains… Read more

Mar 1, 2013

Massachusetts Fair Franchise Act

The Massachusetts legislature is considering, once again, the enactment of a franchise relationship/termination statute titled the “Massachusetts Fair Franchise Act” (the “Act”).  The bill, similar to those proposed in other states such as California and Vermont, would prohibit a franchisor from terminating or cancelling a franchise, or from substantially changing the competitive circumstances of a franchise agreement without “good cause.”  Under the Act, “good cause” must be based upon legitimate business reasons, including a franchisee’s refusal or failure to comply with express obligations of the franchise agreement. In addition to the foregoing, the Act would require that written notice of… Read more

Feb 6, 2013

Non-Compete Provision Discharged Through Bankruptcy

A bankruptcy court in Texarkana, Texas held that breaches by two debtor-franchisees of a non-competition covenant in their franchise agreement with a print shop franchisor qualified for discharge through bankruptcy.  As the court noted, in addition to equitable remedies such as injunctive relief, Michigan law (under which the franchise agreement was governed) allowed for the award of monetary damages as compensation for violation of a non-competition agreement.  Because monetary damages were an available remedy, the court reasoned, the breach of the covenant qualified as a dischargeable “claim” in a bankruptcy scenario. Allegra Network, LLC v. Ruth, No. 10-50184, Bankr. Ct.,… Read more

Jan 1, 2013

New Jersey Distributor Not Considered a Franchise

A federal district court in New Jersey ruled that an exclusive distribution arrangement did not qualify as a franchise relationship under the New Jersey Franchise Practices Act (“NJFPA”) because it did not include a license to use the manufacturer’s trademark or trade name. Therefore, the court ruled that the manufacturer’s termination of the distributor did not violate the NJFPA. Under New Jersey law, a franchise relationship may exist where a party uses another’s trade name in such a manner as to create a reasonable belief among the public that there is a connection between the trade name licensor and the… Read more

Dec 30, 2012

Applications for New Top-Level Domain Names Accepted This Month

On January 12, 2012, the Internet Corporation for Assigned Names and Numbers (“ICANN”), a government-sponsored, non-profit corporation responsible for coordinating the Internet’s systems of unique identifiers, will begin accepting applications for new top-level domain (“TLD”) names. In the past, only a limited set of TLDs have been allowed, including the familiar .com, .org, and .gov extensions. Under the new proposal, companies and individuals may register, name and operate their own TLDs with few limitations. The fee for a new TLD will be $185,000, with an additional annual maintenance fee of $25,000. Various industries, including the International Franchise Association, have lobbied… Read more

Dec 30, 2012

Non-Compete Provision Voided

A federal district court in Georgia ruled that a provision in a franchise agreement barring a former hair salon franchisee from working in “any similar business” for a period of two years was unreasonably restrictive. The provision at issue prohibited the hair salon owner from serving in any capacity “in any business engaged in the sale or rental of products or services the same as or similar to those of the Fantastic Sams System” within a five mile radius of the franchised salon, or within a two and a half mile radius of any other Fantastic Sams location for a… Read more

Oct 18, 2012

FTC Clarifies Franchise Rule’s “Exclusive Territory” Disclosure

On October 16, 2012, the Federal Trade Commission (the “FTC”) answered an additional “frequently asked question” regarding the 2007 amendments to its Franchise Rule. The frequently asked question is: “May a franchisor state in Item 12 that it grants an ‘exclusive territory’ if it reserves the right to open franchised or company outlets in so-called ‘non-traditional venues’ like airports, arenas, hospitals, hotels, malls, military installations, national parks, schools, stadiums and theme parks?” The FTC has responded that a franchise may not state in Item 12 that it grants “exclusive territory” if it reserves rights to open outlets selling the same… Read more

Oct 15, 2012

System for Producing Hot Pizzas Not a Trade Secret

A federal court in South Dakota dismissed claims brought by restaurant franchisor Little Caesars seeking an injunction against a franchisee from offering “all day, every day ready-for-pick-up pizzas”. According to Little Ceasars, the franchisee was allegedly misappropriating the franchisor’s trade secret for “Hot-N-Ready” pizza for use in a non-franchised pizza parlor. While the franchisor argued that its system for producing “Hot-N-Ready” pizzas constituted a trade secret under the South Dakota Trade Secrets Act, the court found that Little Ceasars had failed to demonstrate that information within the system was not “generally known” to the public. The “Hot-N-Ready” system, the court… Read more

Oct 5, 2012

Manitoba Franchise Legislation Comes Into Effect

The Canadian province of Manitoba’s new franchise laws, The Franchise Act and Franchises Regulation, came into effect on October 1, 2012. Manitoba now joins Ontario, Alberta, Prince Edward Island and New Brunswick among Canadian provinces requiring pre-franchise agreement disclosures. Details about Manitoba’s franchise law were discussed in our previous issue.