Texas Franchisor Whataburger (Potentially) Ends 30-Year Argument. The Trademarkblog.com has an interesting discussion of two Whataburgers -- only one can come first. The Texas franchisor has apparently been successful in claiming priority over its Virginia doppelganger for the name WHATABURGER. However, the Fourth Circuit also ruled (and Texas Whataburger acknowledged) that the Virginia company did not infringe the Texas company's marks.
Blockbuster Continues to Review NetFlix Success. More on Blockbuster's efforts to compete with DVDs-by-mail services. This article confirms the repeated reports that the video rental business has passed its peak and now must find new ways to generate revenue, other than walk-in rentals and late fees.
QuikDrop Announces Flat Fee Royalty. The new franchisor of drop-off locations for eBay customers recently announced that it will not follow traditional franchising suit by charging a royalty percentage on the franchisee's gross sales, but rather will charge a flat fee as a royalty. Under this approach, a franchisee grossing $1 million annually and a franchisee grossing $200,000 annually will pay the same franchise fee. QuikDrop says this royalty arrangement allows it to focus on customer service and spend less time with royalty administration. QuikDrop's President claims that the company draws inspiration from the success of Curves International's flat royalty program. For more on QuikDrop, see blog entry from February 20.
California Joins Coordinated Franchise Review Process. Click here for the press release about California's participation in the Coordinated Franchise Review Process, a nationwide effort to streamline the registration process for franchisors by allowing them to obtain simultaneous review of their offering circulars in multiple states.
There Ain't No Haagen, There Ain't No Dazs. Dreyer's announced that it has purchased the Haagen-Dazs franchise business from General Mills. Haagen-Dazs Ice Cream Shoppe, Inc., the franchisor of Haagen-Dazs Ice Cream Shoppes, is based in Minneapolis and has 236 franchised units. With this acquisition, Dreyer's becomes the sole manufacturer and distributor of Haagen-Dazs ice cream in the United States. Dreyer's currently manufactures and distributes ice cream under these trade names: Edy's, Starbucks, Healthy Choice, Nestle Drumstick, Nestle Crunch, Dole, Push-up and Carnation. The terms of Dreyer's purchase of Haagen-Dazs were not disclosed.
Is 'Never-Ending' a Protectible Term? Darden Corporation, the parent company of Olive Garden and Red Lobster, thinks it is. Darden has sued IHOP in Orlando federal court because IHOP is running a campaign for never-ending pancakes and never-ending shrimp. Darden claims that its ad campaigns and its marketing of the never-ending pasta bowl provide a consumer-friendly base for IHOP's ads and that IHOP is gaining an unfair advantage from its use of "never-ending." Darden also claims that consumers are likely to be confused by the competing ads, especially now that IHOP is attempting to move into a more upscale, casual market. The case was filed on February 3, 2004.
We're in the process of moving the Franchise Law Blog from Blogger to Movable Type.
For now, visit us at our old site.
We'll keep you posted as we make progress.
American Hospitality Concepts, Inc., the parent of the Ground Round Grill & Bar restaurant chain, filed for Chapter 11 bankruptcy protection in Boston. This filing followed the abrupt closing of 59 corporate-owned Ground Round restaurants last Friday. One hundred thirty franchised Ground Round restaurants remain open. For another report, see the Springfield News Sun. No schedules have been filed.
Hard as it may be to believe, Ireland is set to introduce the most sweeping workplace smoking ban in the European Union. The ban, if passed, will prohibit indoor smoking in all workplace environments, including pubs and restaurants. Violators of the ban will be required to pay a fine equal to $3,850 US.
Internet Retailer reports that Quik Drop, the franchisor of eBay drop off locations, plans to add a substantial number of drop-off locations -- expanding from 8 to more than 200 locations by the end of this year. Already 20 different companies have established businesses to service eBay transactions. Quik Drop distinguishes itself by offering a range of eBay services including photographing the sale items, posting the listings and processing payments for its customers.
Another franchisor looking for substantial expansion -- Rock Bottom Restaurant and Brewery plans to add 110 locations by 2008.
Appropo of both of these articles, here's an article from the Denver Post discussing the risks and benefits of rapid growth. The article focuses on the business plans of two growing companies -- Illegal Pete's burrito restaurants and Noodles & Co., both Colorado-based franchisors on the brink of national expansion. Both companies see the benefits to franchise growth -- speed and use of franchisees' capital to expand -- but both fear losing control of the expansion, expanding too quickly and losing their present corporate culture.
As the saying goes, potential mistreatment of chickens makes strange bedfellows. Richard Pryor has joined Pamela Anderson and Paul McCartney in an anti-KFC campaign. Pryor will appear in ads asking consumers to boycott KFC for its cruely toward chickens. According to PETA, KFC breeds and drugs its chickens so that they become so heavy they are crippled by their own weight. PETA also accuses KFC of cruel slaughter methods.
Two years after founder Dave Thomas's death, Wendy's introduces the public to "Mr. Wendy," the chain's new spokesman, designed as a Wendy's zealot. Wendy's is looking to regain some of its brand awareness, which has suffered significant attrition since the death of Mr. Thomas, the most recognizable spokesman in advertising. The chain continues, however, to associate itself with its founder's image, having had a whole new set of posters made that bear Dave Thomas's image for store display.
Here's another article on the Independent Shell dealers' claims that Shell is attempting to drive them out of business.
Cendant Purchases Sotheby's Real Estate Arm. Not surprisingly, it was a pretty expensive arm. According to the New York Times, Cendant expanded its considerable franchise holdings, which real estate franchised systems like Century 21 and ERA, by adding Sotheby's 15 real estate offices for $100 million. Cendant looks to expand the chain to be the first company to build a franchise brand in the luxury real estate market.
Krispy Kreme Buys Back Franchised Territories. In a move that has some stockwatchers wondering about the company's strategy, Krispy Kreme has bought four large franchisees. This article in Triad suggests that while the company used hand-picked franchisees to begin the brand's near-perfect expansion in the U.S., it may be paying on the high end to repurchase franchises from franchisees who were at one time Krispy Kreme executives. Despite some shareholder complaints, the stock continues to be highly regarded on Wall Street.
Legal Forms Franchise Takes Manhattan. We the People is the franchisor of legal forms businesses. Although the chain has been embattled by state bar associations claiming that the businesses are practicing law without a license, business has apparently never been better for the chain. Ira Distenfeld, the chain's chairman, expressed some surprise at the level of business achieved by the company's 15 new franchises in New York. Having won 26 of the 29 lawsuits brought against the company by bar associations, We the People has prepared for further expansion, with a new goodwill ambassador, Rudy Giuliani, who signed on to assist the company with its expansion and development.
For more on the debate, read this Los Angeles Times article that discusses judges reactions to the documents prepared by We the People.
Former Days Inn Owners Convicted of Fraud. Last Week, a New York federal court convicted the former owner of the Days Inn hotel chain of a $100 million scheme to defraud a dozen financial institutions. Monty Hundley, a partner in Tollman Hundley Hotels which owned and operated 100 hotels, was convicted, along with three business associates -- Sanford Freedman (general counsel), James Cutler, (chief financial officer) and Howard Zukerman (vice president for finance). Mr. Hundley's business partner, Stanley Tollman, is currently a fugitive.
The prosecutors argued that Tollman Hundley built its hotel chain in the 1980's using financing from a number of financial institutions. According to the New York Times article, during a restructuring, Tollman and Hundley personally entered into notes for about $100 million dollars for debt to hotel creditors. In 1992, Tollman Hundley sold Days Inn of America to Hospitality Franchise Systems (now Cendant). As part of the transaction, the partners were entitled to Cendant stock if the hotels continued to do well.
After the transaction, the prosecutors said, Tollman and Hundley convinced the creditors that there was no money despite their substantial holdings and their stock portfolios in Cendant and convinced the banks to sell the distressed debt at a fraction of the total amount. The companies that purchased the dramatically reduced debt, it was later discovered, were controlled by Tollman and Hundley. The four convicted individuals are scheduled for sentencing in June. They face up to 30 years in prison, and the prosecutors are seeking $45 million and the return of Tollman, who they believe is living in London.
Entertainment News. A couple of stories that have been lingering for a while:
A. Viacom Will Sell Its Shares in Blockbuster. The Washington Post reports that Viacom announced after Blockbuster's dismal fourth quarter (Blockbuster posted a $1.19 billion loss), it will divest itself of an 81% controlling share in the movie rental company through a tax-free spin-off. Although Viacom has been discussing a sale of its stock for months, this is the first discussion of a spin-off.
B. Tower Records' Parent Files Bankruptcy. MTS, Inc., the privately held parent of Tower Records, filed a Chapter 11 bankruptcy in the district of Delaware. The company announced that it filed a prepackaged plan of reorganization. The filing is expected to ultimately result in the sale of the 93-store Tower Record Chain, that has suffered under changes in the music industry and the impact of discount stores like Wal-Mart and Best Buy.
Maris Distributing -- Retaliation in Bar Complaint Filed by Anheuser Busch. After representing Maris Distributing in an antitrust and breach of contract action against Anheuser Busch, plaintiffs' counsel became defendants in a Florida Bar complaint filed by Anheuser Busch for improper conduct. The referee deciding the matter accused Anheuser Busch of "using this disciplinary action as vindication" after losing at trial. In 2001, a jury awarded Maris $50 million in damages, finding that Anheuser Busch breached its contract with Maris when it terminated the franchise in 1997.
Subway Looks to Expand in the Middle East. With 71 units currently open from Pakistan to Turkey, Subway plans to open 350 stores in the Middle East by 2010.
Burger King's Second in Command Resigns After One Year on the Job. The New York Times (registration required) reports that Bob Nilsen, Burger King's president for the last year, has tendered his resignation. Brad Blum, the company's CEO and the man who hired Nilsen in January 2003, announced Nilsen's resignation yesterday but did not elaborate on the reasons for his departure. The burger giant, however, continues to struggle to increase its sales; Burger King's sales showed a chain-wide decline of 2% for the fiscal year ending in June. The company recently fired its advertising agency.
Find your Center and Then Sue the Yogi. If you're having trouble finding a local yoga place that offers Bikram yoga, it may have to do with the lack of qualified instructors and dozens of cease and desist letters that went to schools that fail to meet the Bikram standards. Bikram yoga, named after its inventor, Bikram Choudry, is a set of 26 yoga poses performed in room heated to 105 degrees. Choudry has sent over a hundred cease and desist letters to yoga centers all over the country claiming that they must stop providing Bikram yoga because they deviate from his system or they don't use instructors trained by Choudry. In response, a non-profit collective, called Open Source Yoga Unity, sued Choudry seeking declaratory relief stating that he has no trademark or copyright protection because his poses have been used in public for centuries. According to the group, "No one can own a style of yoga." Namaste.
Scottish Groups Protest Krispy Kreme's Fundraising Program. When Krispy Kreme first opened in Harrod's in London, there was a bit of a fat flap over it. FT.com claimed that some watchdog groups complained that the Brits had obesity problems and that Krispy Kreme doughnuts would only exacerbate the problem. See blog entry October 3, 2003. The store opened and it seems like the delicious doughnuts have soothed the watchdog beast. In Scotland, however, some groups charge that Krispy Kreme's program of selling their doughnuts to non-profit groups like schools for reduced prices so that the groups can resell the doughnuts is improper. Specifically, the watchdogs claim that Krispy Kreme's targeting of a disabled charity group went too far. Although the group rejected the offer, the manager of the group stated: “The idea of plying disabled people with doughnuts is not something I would endorse."
Au Bon Pain Presses the Frontier in Minnesota. The Pioneer Press reports that the French bakery that enjoyed wide popularity in the Northeast in the early 90's is looking to expand its franchise system. Border Foods, a Minneapolis area franchisee of KFC, Taco Bell, Pizza Hut and others, has signed an agreement to develop 20 Au Bon Pain restaurants in the Twin Cities in the next five years. Au Bon Pain took a two-year hiatus to retool and rework its menu. It hopes to expand its customer base by introducing low-carb alternatives to its menu.
Starbucks Sues Chinese Competitor "Starbuck" for Infringement. In Beijing, the name Starbucks does not apparently wield the same power as it does in the United States. Well, maybe it does because at least one coffee chain has selected a very similar name. However, the folks in Beijing don't seem to fear Starbucks' power. It would hard to imagine an American with enough nerve (or money) to try to operate a coffee shop called "Starbuck," or "Xingbake" in Mandarin. The Starbuck coffee chain operated by CAFE claims that they had always planned to use the name Xingbake , that they had never heard of Starbucks and that it was nothing more than coincidence that their planned name was the same as the Chinese word for Starbuck. Starbucks operates 83 units in China. The company has filed suit against CAFE for copyright infringement.
The Co-Branding Solution. This article from the Los Angeles Daily News reports on merging franchise concepts under one roof. After buying the chicken chain Koo Koo Roo last year, Fuddruckers has moved its burger concept into at least six of the 18 restaurants in the system. Likewise, CKE Restaurants has combined its Green Burrito and Carl's Jr. concepts, seeking to eliminate the veto vote -- that is, the vote of one or two persons in a group that doesn't like the kind of food offered by one concept.
A&W Faces Religious Speech Censorship Issue. This Rocky Mountain News editorial discusses the local A&W franchisees whose biblical references on the A&W marquee have created a flurry of debate involving A&W and the Anti-Defamation League (ADL). The ADL claims that the franchisees' marquee statements like "One quarter pound all beef Coney dogs / chili cheese fries / Proverbs 10:9 / He who walks purely walks securely!" discriminate against employees and customers on religious grounds. After receiving complaints from the ADL and unidentified individuals, A&W sent a cease and desist to the franchisees and demanded that the franchisees stop quoting Bible verses on the marquee. The author questions the rights of a franchisor to restrict the franchisees' religious speech. It seems clear to me, however, that while the franchisee may have the constitutional right to engage in religious speech, it does not have the right to associate such speech with A&W's federally-registered trademarks.
Google Faces Some Trademark Battles. First, PC World reports on a lawsuit filed by American Blind & Wallpaper Factory suit in federal court for the Northern District of New York against Google, claiming that Google's practice of selling keyword-based advertising to competitors violates American Blind's trademarks. Specifically, American Blind contends that Google users searching "American Blind" will be directed to a results page that provides advertising from American Blind's competitors. Google has filed its own suit in the Northern District of California, arguing that American and Blind are not entitled to trademark protection. American Blind has filed for an injunction to stop Google's keyword-based advertising.
In other less lofty Google trademark debates, Google has demanded that the owners of a new adult website search engine called "Booble" take down their website. Martin Schwimmer's trademark blog is following the debate and Mr. Schwimmer has been quoted in this article in internews.com discussing the merits of the parties' claims. Booble claims that their site is a parody (which Google disputes) and has apparently had over a million hits per day since Google sent the demand letter. See this article in the New York Times for discussion of the website dispute and Google's role in Booble's popularity.
11th Circuit Affirms Injunction against Dunkin' Franchisee. The Miami Herald reports that Omar Martinez, a Dunkin' franchisee who was terminated for federal tax violations, has finally closed his Dunkin' Donuts doors after the 11th Circuit affirmed the district court's injunction of his operation. Martinez argued that Dunkin' should not be permitted to terminate franchises for criminal conduct if the government does not prosecute the franchisees. The court disagreed, holding that Dunkin' has the right to terminate for such conduct and that the franchisees were required to stop using Dunkin's marks. The 11th Circuit affirmed. Dunkin's standards compliance and now "obey all laws" compliance programs have been closely watched by the franchise community. The "obey all laws" compliance has, however, received mixed reactions. See January 27 and October 16 blog entries.
Class Action against Shakey's Raises Disclosure Issues. This article in pizzamarketplace.com reports that the December 2002 class action lawsuit against Shakey's has raised claims regarding the pizza shop franchisor's disclosures to its franchisees. According to court documents, in October 2002, a California franchise examiner rejected Shakey's renewal request based on its questionable financials. The examiner required Shakey's to enter into California's impound procedure to place a prospective franchisee's franchise fee in escrow until the franchisor completed its obligations under the franchise agreement. Shakey's asked the examiner to reconsider. The examiner denied the request. After this exchange, Shakey's did not satisfy the impound requirements but continued to negotiate renewal terms with its franchisees.
Shakey's counsel stated that it was not illegal for Shakey's to continue to negotiate the renewals of franchise agreements with an outdated UFOC. The franchisees claim that Shakey's expressly stated that it had applied for renewal in California and that it would soon be granted; this misrepresentation (and Shakey's failure to disclose its financial condition), according to the franchisees, was deliberate and material to the franchisee's decisions to renew their Shakey's franchise agreements. The class action brought by 39 franchisees is pending in state court in California.