2015 Top Posts - Happy Holidays!

First, I want to wish you and your families Season's Greetings and Happy Holidays!

Next, THANK YOU for your loyal readership - since the January 2015 start of this blog, you contributed to over 6,100 views of the articles posted on this blog. I consider that a HUGE success! I hope the information was interesting and helpful.

Here are the top posts for 2015:

What is the best franchise to buy?

309 Views

Franchising Marijuana - Part Two
305 Views

Franchising Marijuana - Part One
297 Views

Franchising Marijuana - Part Three - Trademarks
200 Views

Janitorial Franchises - Is it just a Job?
188 Views

Thanks again, have a great Holiday and a successful New Year - see you next year!

Are You Prepared?

This post may strike some of you as off-topic for a franchise blog but after seeing Jon Hyman's post on the Ohio Employer's Law Blog last week - Are you prepared for an active shooter at your workplace? - I thought the information was important to pass along to the franchise community.

Jon's post was in reaction to the San Bernardino terrorist attack and probably the Paris attacks. Very sad on all accounts. But, the post passed on the Department of Homeland Security's Guide on How to Respond to an Active Shooter. Really? Has this truly become necessary? Unfortunately yes!

Now I do not subscribe to Ben Carson's suggestion that people should collectively charge shooters - although we may want to and while some people have the courage to do so, it seems quite unrealistic when automatic weapons are discharging rounds at lighting speed. But having a plan at a school, place of business or place of employment is a good idea.

So perhaps the Department of Homeland Security's Guide may save a few lives. Give it a read and pass along to your friends and franchise family.

Hopefully, we will not see an incident in any of our franchise businesses but it is possible, unfortunately. Be smart and be prepared!

Arbitration ... the good, the bad and the ugly?

Much has been written about arbitration ... and in the franchise world we discuss it quite frequently at conferences and in law journals ... and put it into play when disputes arise.

But most recently, Bruce Schaeffer at Franchise Valuations, pointed out in The Franchise Valuations Reporter (November 2015) that the New York Times published a 3-part series: Part 1 (Stacking the Deck of Justice), Part 2 (Privatization of the Justice System) and Part 3 (Religious Arbitration). To quote from the The Franchise Valuations Reporter, "According to [the] 3-part series ..., arbitration has become primarily an old boys' network and a tool to keep confidential the misdeeds of the more powerful.  The series reveals the many abuses in the process although not really focusing on commercial arbitration between businesses."

Although the Times series does not focus on the commercial world (it concentrates on consumer purchasing matters, such as cellphones, credit cards, cable companies and, to some degree, employment matters), many of the "bad" aspects of arbitration discussed in the series are seen in franchise arbitration agreements. Now when we say "bad" that is from the franchisee-aspect of the franchise equation. What may be "bad" for franchisees is usually "good" for franchisors ... after all they do write the provisions! And, the legal pendulum has swung decidedly in favor of enforcing arbitration agreements. (See the Times series)

When representing franchisees and franchisors, we lawyers struggle over the best dispute mechanism for our clients. Should we go to court? Mediation? Arbitration? Sometimes what seems to be a good idea on paper, backfires in reality. But, like the Part 1-title of the Times series, if we get to draft the Franchise Agreement, truth be known, we do try to stack the deck. This does not mean that the cards are always dealt to the franchise company's advantage, but chances are they will be.

On the franchisee-side, if you have to live with arbitration, make the most of it. Take advantage of the seemingly faster process and select counsel who is familiar with the process and can maximize the experience while reducing the costs typically associated with the judicial process.

Some of the advantages written in favor of franchise companies include:

• the location of the arbitration hearing will likely be in the company's home court
• class action arbitration or multi-party arbitration will not be permitted
• there will be no jury deciding the matter
• rights of appeal are very limited
• pre-arbitration discovery may be limited
• shared or full-cost of arbitrator's fees and administrative fees
• claims for injunctive relief may be limited or non-existent

Potential franchisees need to understand the risks and limitation associated with arbitration. Franchisors should not go too far in striking a procedural imbalance or they risk having courts declare the arbitration requirement unconscionable and unenforceable.

The ugly we will save for another day -- but when franchise disputes arise and the swords are crossed, almost everyone loses one way or another. Mediation anyone?

Uber - Lyft - Regulatory Scramble?

Thanks to my American Bar Association-Forum on Franchising colleagues (via our List-Serv), I was treated to a robust discussion last week about whether Uber (the ride-sharing concept) is a "franchise." Its competitor, Lyft, was also mentioned. Interesting ... but the consensus was that they are not, due to the technical definition of a "franchise" under federal and state laws; reportedly, the drivers pay no initial fee to Uber or Lyft.

 But, the discussion comment that struck a cord came from Attorney Kat Tidd of Dallas Texas: "I think the definition of franchising is going to be truly challenged by technology." And, I think Kat is right.

In fact, in my second post on this blog (you probably missed it), I addressed technology's impact on franchising - Is Franchising Under Attack? And, I even mentioned Uber! Revisiting this topic is worthwhile.

Uber and Lyft and some other "sharing" concepts seem to have fallen into a regulatory void. That is, it seems difficult to classify what they are.

Not only has the "franchise" question been raised but, even more vigorously, the question of whether these systems are EMPLOYERS of their driver-partners rather than the "independent contractors" that Uber and Lyft call them. Suits have been commenced over this IC-classification because ICs do not enjoy all the protections of an employee (tax withholding, workers comp, unemployment benefits, etc.). But, this would not be the first group of ICs to challenge the status.

And, coming back to franchising, do "share-drivers" need the protections of the franchise and business opportunity laws? In other words, is there a lot of financial risk that the "share-drivers" face when entering into the Uber-Lyft relationships? Maybe, maybe not. (They do need to invest in a car, gas and insurance) Further, are there other public policy issues that regulators should be concerned about? Maybe they should not be regulated? Maybe they should be.

I am pretty good at raising the issues ... but lousy at answering them. But we can count on one thing: as new technologies emerge, new business models will follow.

Caution Franchisors: Hoisted by One's Own Petard?

Franchisors: Watch out what you ask for!

A recent Ohio case, Buffalo Wings & Rings LLC v. M3 Restaurant Group, LLC, 2015-Ohio-3843, offers a lesson in being "hoisted by one's own petard." (If you struggle with literary idioms click here or converted to modern American translation: screwing yourself.)

The franchise agreement in this case, as many do now, contained a Limitations of Claims clause that said all claims would be barred unless an action is started "within one year from the date of Franchisee or Franchisor knew or should have known of the facts giving rise to such claims." The crafty franchisor did enter exceptions (all in its favor), including claims for injunctive relief - you can read the decision to get the full list (see pp. 4-5).

In 2011, the franchisee outlined a number of complaints and proposed termination of the relationship. No response came from the franchisor. About 18 months later the franchisor filed suit "alleging claims for breach of contract, breach of guaranty, quantum meruit, and money owed on an account."

Without getting too bogged down in the nuances of the Limitation of Claims provision and its exceptions, the trial and appellate courts held that the franchisor did not start the action within the one year period and none of the exceptions applied. The decision is based on what amounts to poor draftsmanship and, to some degree, over-reaching by the franchisor.

So while many franchisors may seek every advantage in their agreements, they are advised to be cautious about going too far, or if they do, to make certain the language is clear. Which leads to another idiom: Live by the sword, die by the sword! (a biblical one at that!)

Be careful out there.

Social Franchising - Do Franchise Laws Impede Progress to Do Good?

Thanks to an old friend and former client, Tony Wells, I was introduced to the notion of "social franchising" this week. (Tony and his wife Dana operate the Wells Foundation - click here) Social franchising is related to "social entrepreneurship," which is loosely defined as applying business techniques and approaches to solve social problems and concerns. This may mean developing a product or service that serves the greater good rather than pure capitalistic interests, i.e. making a profit. It can also mean developing a business model that generates revenue to sustain a not-for-profit, charitable organization with all proceeds devoted to the charitable mission.

Well, in short measure, I learned that there is great interest in using the "franchise model" to advance the concept of "social entrepreneurship," In fact, the International Franchise Association has established the IFA Social Sector Franchising Task Force (find here), chaired by Michael Seid, founder and managing director of Michael H. Seid & Associates. As noted on the Task Force's website: The mission statement of the Social Sector Task Force is: “To Enhance The Quality Of Life In Underserved Populations – One Opportunity At A Time.”

Further, I was informed by one of my franchise-lawyer colleagues, Donna Christopherson (who is a member of the Task Force) and by my old friend Tony that the social franchise model has been used in Europe and Africa but not so much in the U.S. Indeed, there is the European Social Franchising Network (click here) that indicates that the purpose of this type of franchise is "a social goal, such as the employment of disabled people, the democratisation of the economy or tackling climate change. As such the social franchise has a social purpose and is often owned by its social franchise members but it is also a business that makes profits. Without these profits, it could not survive and grow and meet its social aims."

So what's holding us up in the U.S.? Maybe nothing ...but in my learning process I was informed (by my brilliant colleagues on the ABA Forum on Franchising List-Serv) that state franchise laws and regulations, requiring disclosure documents and other qualifications, may apply to not-for-profits. The FTC staff, in a series of informal advisory opinions, has given legitimately organized not-for-profits a pass because it does not view these types of franchises as "commercial relationships." But, there does not seem to be any guidance from state franchise examiners that the same standard would be applied and there is concern that a federal case, Girl Scouts of Manitou Council, Inc. v. Girl Scouts of the United States of America, Inc., 646 F.3d 983 (7th Cir. May 31, 2011), points to the application of state franchise laws to not-for-profit organizations.

This post is already too long ... but is it time for the adoption of an exemption from the FTC Rule and the state franchise and business opportunity laws to allow those who want to do good to do even more good?

NLRB Decision - Joint Employers - Not Franchise Case

If you just skim the surface, you may be led to believe that the National Labor Relations Board just issued a decision determining that franchisORS are "joint employers" of their franchisEES' employees. But this is not the case. The case involved employees of a temporary staffing company that supplied "rented" workers to Browning-Ferris Industries of California, Inc. and whether Browning-Ferris (which is not a franchisor) can be deemed a joint employer of those employees.

Here is the 50-page decision and dissent - CLICK HERE. Other than a reference in a footnote to the "International Franchise Association," the word "franchise" does not appear in the main decision (the first 21 pages) and the majority makes clear (in footnotes to the dissent) that the case does not involve franchises. The word "franchise" does appear in the dissent ...but more on this later.

Here are the basic facts: BFI owns and operates the Newby Island recycling facility, which receives approximately 1,200 tons per day of mixed materials, mixed waste, and mixed recyclables. BFI, the user firm, contracts with Leadpoint, the supplier firm, to provide the workers who manually sort the material. The relationship between BFI and Leadpoint is governed by a temporary labor services agreement. The issue is, for collective bargaining purposes, should BFI be considered a joint employer - in essence, as stated in the decision: "...the Union asserts that absent a change in the joint-employer standard, a putative employer, like BFI, that is a necessary party to meaningful collective bargaining will continue to insulate itself by the 'calculated restructuring of employment and insertion of a contractor to insulate itself from the basic legal obligation to recognize and bargain with the employees’ representative.'” By a 3-2 decision, the Board determined that BFI is a joint employer for collective bargaining purposes.

Now, back to the dissent, the word "franchise" and the footnotes. As my ABA Forum on Franchising colleagues pointed out in our Forum List-Serv yesterday:

• There is some faint hope for franchising.  Footnote 94 mentions the Patterson v. Domino's decision and says "That decision also addressed the particularized features of franchisor/franchisee relationships, none of which are present here."  A franchise is (hopefully) clearly distinguishable from the relationship before the Board which involved a staffing agency providing employees to work on the premises of the purported joint employer.  The Dissent in its discussion of the threat to franchising also notes that the General Counsel in his amicus brief argued that the Board "should continue to exempt franchisors from joint employer status to the extent that their indirect control over employee working conditions is related to their legitimate interest in protecting the quality of their product or brand."  

•  FN 120 is even more to the point: "The dissent is simply wrong when it insists that today’s decision “fundamentally alters the law” with regard to the employment relationships that may arise under various legal relationships between different entities: “lessor-lessee, parent-subsidiary, contractor-subcontractor, franchisor-franchisee, predecessor-successor, creditor-debtor, and contractor-consumer.” None of those situations are before us today, and we decline the dissent’s implicit invitation to address the facts in every hypothetical situation in which the Board might be called on to make a joint-employer determination. As we have made clear, the common law test requires us to review, in each case, all of the relevant control factors that are present determining the terms of employment. In this case we are specifically concerned with only two employers: BFI and Leadpoint.

'Nuff said.

What do Tom Brady and Jared Fogle have in Common?

What do Tom Brady and Jared Fogle have in common?

No, they are not both NFL players and they are not both pitchmen for Subway. And, NO Tom Brady is not involved in the same egregious acts as Fogle ... although many take a dim view of the allegations against him, compounded by destroying his phone.

But, both individuals represent their respective "franchised" brands and their actions have sullied those brands. In Brady's case, New England fans may argue that NFL Commissioner Roger Goodell is the culprit, but Brady's challenges have escalated the attention and, some would say, the damage to the brand.

Franchising and brand awareness go hand-in-hand. I have written about the importance of brand enforcement before here and here. But how do you control brand disasters like Fogle ... and to some degree Brady? While there is not a single answer for both situations, there may be individual remedies for these very different scenarios:

• Fogle and Subway - never get too attached to one "celebrity"; your brand may rise or fall with the actions of that spokesperson. Diversify!
• Brady and the Patriots - assess whether fighting a "penalty" is worth it. Would Brady and the Patriots be better off if they said "we don't like, we did not do this but in the interest of our fans and the team as a whole we will accept the penalty"? All the attention would be over. And now, does it matter if Brady wins or loses his appeal? The damage is done and has been in the headlines the entire summer! Brady may win the appeal, but he and the Patriots have lost the remaining luster of the brand (some believe it was already tarnished).

So be careful out there - guard your brand and figure out your best damage control strategy when disaster strikes!

Leasing Your Location - Prepare for the Wait

With patience and due diligence it has taken you six month or more to lock-down your franchise. But are you ready for stage two of opening your business?

After discovery days, contract signing, training and other assorted preliminaries, you are eager to set-up shop. The franchisor has given you some guidance and criteria to select a location but now you are on your own. But, before setting you free, the franchisor, as a reminder, pointed out that clause in the franchise agreement requiring you to lease a location within 180 days. At least there is no pressure!

But prepare yourself ... this process of finding the right location, at the right price, and negotiating the lease could take longer than you think - perhaps longer than buying the franchise. I have had a number of clients go through this drill. It is a frustrating process.

So the best thing you can do is prepare yourself in advance that this going to take time and effort OR just wait until you are under the gun and be driven by panic.

But, here is the real dilemma: Do you look for possible lease locations before deciding on a franchise or get the franchise and then start the hunt? (many horse-and-cart and chicken-or-egg cliches could be inserted here but I'll spare you ... or not)

It seems difficult to look for a location before you have the franchise - too many unknowns: what is the business, where is it best located, what does the franchisor require, what territory in the franchise system is open, etc. etc? However, you can scout the potential areas you are interested in before you decide on the right franchise. Educate yourself. Learn the leasing market. Contact a commercial realtor. Develop some idea of the cost and availability.

Although some franchise systems are intensely involved in the selection process, most leave the ultimate responsibility of selection to the franchisee (franchisors disclaim responsibility for the profitability of a location). So get ahead of the curve and bone-up on the leasing market in your areas of interest.

You might even impress the franchisor.

5 Mistakes Start-up Franchise Systems Make

Starting a new franchise venture is exciting – the anticipation of building a system, helping others succeed, financial success … all fueled by entrepreneurial energy and adrenaline!

But nothing can put the brakes on an otherwise enthusiastic and formidable franchise start than the following five missteps:

1. Failing to secure and register the trademark – the essence of franchise success is uniformity and brand identification. Your trademark is your identity. Do you have a trademark or service mark that is unique, protectable and able to be registered with the United States Patent and Trademark (USPTO)? This is a federal registration that will protect you and allow you to ward off poachers – but not all names or marks are protectable. The USPTO registers allowable trademarks that are not already registered, not descriptive for the goods/services, a geographical term or a surname. To determine if your mark will qualify for registration (i.e. protection), you need the services of an experienced trademark or franchise counsel.
 

2. Using a “reactive” development strategy – allowing franchise buyers to control where you will locate your units is a huge mistake. Careful and determined placement of your franchise locations is a must – be “proactive” not reactive. I see too many start-up systems that attempt to sell nationwide – the result is a far-flung, unmanageable system that lacks geographic synergy and brand identification. Concentrate, concentrate, concentrate. A statewide or regional development approach makes better sense than “going national.”

3. Failing to retain experienced franchise counsel – because franchising is a “regulated” business process (similar to selling securities), retaining inexperienced legal counsel is risky and costly. Preparation of a fully-complaint Franchise Disclosure Document, as required by the Federal Trade Commission and franchise registration states (approximately 15 states), as well as thoroughly-drafted agreements, is not for neophytes. My recommendation is to select a member of the American Bar Association’s Forum on Franchising, the preeminent national association for franchise attorneys. Forum members are exposed to constant legal updates, attend national conferences, write informative franchise articles and maintain a national informational network. Using inexperienced counsel can set a system back to the very start.

4. Improper franchise sales training – selling a franchise is tricky business. Some of the issues include: knowing registration requirements, having the correct documents, knowing when and how to deliver disclosure documents and final agreements, knowing the rules about financial performance representations – just to name a few. Flawed sales can lead to major legal problems. Make sure you and your sales personnel know what you are doing. For a great sales guide, consult my friend Warren Lee Lewis’s The Franchise Seller’s Handbook. (warren.lewis@akerman.com)

5. Selling to the “wrong” buyers – just as a “reactive” geographic development strategy can set a new system on the wrong path, so too can poor franchisee selections. The first few franchisees are the most important. Take your time and make sure you are choosing the best “partners.” You don’t want just anyone, you want the best ones. Before you meet with anyone, develop your ideal “franchisee-profile” and then see how your candidates stack-up against your standard. Develop a solid franchise application, check references, vet personalities and capabilities. Engage in proactive due diligence.

Get your system off to a strong start – match that enthusiasm with solid preparation by avoiding the five basic mistakes.

The Aging Workforce: A Challenge for Franchise Systems?

Franchise systems employ over 8.5 million Americans – with more than 20 million employed in related and supporting businesses, resulting in 15% of all U.S. private-industry jobs. That’s a lot of people!

But how many of them are getting older? Well everybody … but the largest segment of our society will soon reach traditional retirement age and may continue working. This may present some unique challenges for employers. Franchise systems are not immune from this trend.

With the advance of years, come physical and cognitive limitations that can affect an employee’s performance. So when this occurs franchise-system-employers can just get rid of the faltering employee right? Maybe not.

While “age discrimination” may be the most obvious concern, amendments to the Americans with Disabilities Act (“ADA”) substantially broaden the protections available to aging employees (actually any employee) who develop a “disability.” With these new protections come expanded burdens on employers which may have a profound effect on how employers deal with their older employees.

A brief overview may help franchisors AND franchisees avoid unwanted legal claims.

The Americans with Disabilities Act

• The ADA applies to employers with 15 or more employees;

• The ADA applies to employees with a “disability.”  In the simplest terms, anyone who has a physical or mental impairment that limits their normal lifestyle or major life activities, will be deemed to have a disability;

• Only a disability which affects job performance or the ability to perform any aspect of a job is relevant;

• Once identified or obvious and a determination is made that a disability affects job performance, the employee or their representative may request a “reasonable accommodation” as necessary to perform their job to the satisfaction of the employer. The request for an accommodation must be made by the employee or their representative unless it is obvious that the employee is unable to make the request on their own behalf.  As a practical matter, however, when  a disability is obvious to an employer, it is recommended that the employer take affirmative steps to ask the employee if they want an accommodation;

• When the employee requests accommodation, the employer may ask for reasonable documentation to support the request.  Doctors’ reports, medical instructions or other supporting documentation may be requested. Documentation can come from a health care provider or rehabilitation professional. The request  must be limited to the disability and the accommodation issues (not all medical records);

• Once the documentation is obtained or the employer is otherwise adequately informed, the employer should meet with the employee and conduct an interactive meeting to discuss possible accommodations that may work for the employee and be satisfactory to the employer (the EEOC offers this explanation: The employer and the individual with a disability should engage in an informal process to clarify what the individual needs and identify the appropriate reasonable accommodation. The employer may ask the individual relevant questions that will enable it to make an informed decision about the request. This includes asking what type of reasonable accommodation is needed);

• The only statutory limitation on an employer's obligation to provide "reasonable accommodation" is that no change or modification is required if it would cause "undue hardship."  "Undue hardship" means significant difficulty or expense and focuses on the resources and circumstances of each employer in relation to the cost or difficulty of providing a specific accommodation. Undue hardship is determined through a “circumstances” test which considers not only financial difficulty, but whether reasonable an accommodation is unduly extensive, substantial, or disruptive, or would fundamentally alter the nature or operation of the business.

Again, while there are many nuances associated with the above factors and each case is different, the basic steps outlined above generally apply to any circumstance involving a disabled or aging employee. Please keep in mind that your state may also provide protections for disabled employees.

Given the complexity of workplace protections today, it is always wise to consult your legal counsel before a simple employment matter spins out of control.

Brand Enforcement Redux

This week I was planning to write about Financial Performance Representations (the subject of FDD Item 19) when a funny thing happened on the way home from bocce last night (that's right I play in a bocce league!)

I asked my friend Nick (the driver) to stop at a Burger King so I could pick up a Whopper with cheese. Yes I know they are not particularly healthy but I like them. And, look at them, they are irresistible ...

So we pull up to the electronic menu board and after about 2 minute wait (literally) I shout my order from the passenger's side. This is about 8 PM, the parking lot is empty. With one car ahead of us at the service window, my mouth is watering and I figure we are well positioned for a quick grab and go!

Nick pulls up behind the waiting customer and we wait ... and wait and wait. We wait for at least 5 minutes with no human appearing, no service to the guy in front of us. Completely frustrated as I can easily become, I exit the car, look in the service-window and chat with the waiting car-customer. The single visible employee is at the main customer counter taking a new in-person order. I turn to the waiting car-customer (who must have been waiting at least 10 minutes), and he says. "I think he's the only guy in there, making all the food and taking orders!"

Returning to the car, I tell Nick to forget about it. Being far more patient than me, Nick waits another 2 minutes and with no action for the waiting car-customer, I finally persuade him to leave.

No Whopper with cheese, no service, no more Burger King.

I do not know if this was a corporate location (I doubt it in the middle of Ohio) or a franchise location but does it matter? No. As I wrote a few weeks back (see the post here):

Every location is an animated billboard for your brand, your business. And, I am not talking just to franchisors here. Franchisees, it is your brand as well! Think of it. Every time a customer visits ANY franchise location, it is a reflection of EVERY location in the system. To keep the system-wide impression sterling (not Donald), you must do your part.

Franchisors and franchisees UNITE and enforce your standards, your brand image and your system - it is your most important asset!

It is Big Macs for me from here on out.

Could Mediation Remove the Blind Spot?

Full disclosure: I recently started mediating franchise disagreements and other commercial disputes (see my post announcing my mediation services). So far so good...

Because of this new dimension to my practice, I stay alert to articles and blogs discussing litigation and settlement, especially the psychology of the process. One blog is the Persuasive Litigator written by Dr. Ken Broda-Bahm and his team. Last week's article was "Look for the Dunning-Kruger Effect."

The main finding of the Dunning-Kruger study (done in 1999) - when it comes to self-assessing one's own skills, competent individuals were able to accurately assess their own relative ranking, but incompetent people consistently overestimated their's - did not draw my attention as much as an analogous connection mentioned: that attorneys can be poor predictors of the outcome of their own cases.They have a blind spot.

While surely this does not apply to my ability, the article makes the case:

Cases fail to settle, or settle at an inappropriately late hour, often due to the parties' failure to accurately assess their case. The attorneys, the research supports, can also be surprisingly poor predictors of their own case's prospects. The advocate's role in seeing the best in their own case, the "partisan distortion," can serve as a barrier to settlement, as well as a barrier to the kinds of honest assessment that sets the stage for the best strategy in trial. Advocates' best bet is to obtain as many neutral, or neutralish assessments as possible -- including from mock jurors -- in order to get a realistic grip on the case.

Mock juries are good if you can afford one (none of my clients have been able to); but when I have my litigator hat on, I know that I am a partisan, biased in favor of my client's case. Call it human nature, borne out by the research. Some mediators have helped me and my clients come down to earth, to better assess our chances.

While mediation may not settle your case, it may help you and your client "get a realistic grip on the case." In the franchise arena, where many options are available to settle a case, mediation may solve your dispute or open your eyes to a better strategy. And, the synergistic mediation process may lead to an outcome not previously considered. This just occurred in a mediation I conducted, where a party's creative suggestion broke the logjam.

Remove the blind spot.

Franchisees' Employees Not Franchisor's

Just finished reading Kaufmann, Gildin & Robbins LLP's (led by David Kaufmann) article: A Franchisor is Not the Employer of Its Franchisees or Their Employees, published in the American Bar Association Forum on Franchising's Franchise Law Journal (Spring 2015).

Kudos to David and his colleagues (Breton Permesly, Felicia Soler, and Dale Cohen) - not only have they taken on this controversial issue (triggered by the NLRB General Counsel), but have produced a virtual treatise on the historical evolution of franchising and its legal underpinnings. Long story short - the NLRB's General Counsel's Complaints lack substance, completely ignore the role of the Federal Trade Commission in franchising and likely will not survive "judicial scrutiny."

While the article is at times a bit strident, the grounding of the requirements for "franchisor control" in the Lanham Act (the U.S. federal law for trademarks) is superb and indisputable.

This is the keystone to the defense against the "joint employer" position. Franchisors have no choice but to require uniformity to protect their most precious asset - their trademark. If franchisors (or any trademark owner) fail to control the quality of the goods and services delivered under their mark, they risk losing the mark.

David and crew offer a number of other reasons why the NLRB position is indefensible: the FTC's 35-year jurisdiction (which the NLRB General Counsel did not seem to review or understand), the definitions of a "franchise" under numerous state laws and the overwhelming legal holdings of most courts that a franchisor is not the employer of its franchisees or their employees.

The control dichotomy franchisors face must be resolved in favor of franchising and franchisors.

While I challenged the hyperbole used by the International Franchise Association when addressing this issue (see this blog post - NLRB Ruling Impacts Franchising - Existential Threat?), the Kaufmann, Gildin & Robbins LLP-article articulates all the reasons why I declared: franchisors need not panic. A legal day of reckoning will see franchising prevail. And most of the persuasion can be found in the Kaufmann, Gildin & Robbins LLP-article.

And, just as I closed my prior blog on this topic, "So, for everyone in a panic out there, I quote Aaron Rodgers ... 'Relax'"!

Brand Enforcement

Is Brand enforcement important? Is this a trick question or just a stupid one?

During the day-to-day struggle of competition and the occasional tug-of-war between franchisors and franchisees, we may forget that brand enforcement is THE most important element of the franchise relationship.

Every location is an animated billboard for your brand, your business. And, I am not talking just to franchisors here. Franchisees, it is your brand as well! Think of it. Every time a customer visits ANY franchise location, it is a reflection of EVERY location in the system. To keep the system-wide impression sterling (not Donald), you must do your part.

Franchise agreements in all systems require uniformity, standards, inspections, and compliance. But the key is enforcement. If the franchisor does not enforce the agreement, uniformity and standards can slip radically...and the animated billboard paints a negative picture.

This is especially important for new franchise systems. Both "partners" need to live and breath the standards. Franchisors: inspect frequently, communicate clearly and enforce regularly. Franchisees: know the standards, embrace uniformity and look forward to inspection - feedback is important. Everyone has a stake in keeping the brand positive.

As a franchise lawyer, I often encounter brand enforcement in notices of default, in an arbitration or mediation and in the courtroom, Commonly, this is too late. Franchisors need to be fair and consistent but must constantly enforce. Franchisees need to remember that they joined a system and that all efforts are "common efforts" to please customers and improve the system..

With that said, franchisors MUST maintain an open, clear and sincere dialogue with franchisees, deliver the enforcement message with care and professionalism, and remain flexible enough to act on legitimate suggestions for change.

Franchisees must provide constructive comments in a non-confrontational manner - in a setting that is outside of an active inspection. Your message will carry more weight when you are in a positive mode rather than a defensive one.

Keep the billboard shining brightly!

Why a "franchise" instead of a license program?

Why don't more franchise lawyers recommend a licensing program instead of those pricey franchise programs? Why bother with all those franchise regulations, when we can avoid the hassle and cost with a simple license? Are the lawyers just in it to make money?

These questions are on the mind of every potential franchisor. I have written about licensing before - Let's Just Sell Licenses! But before you conclude that there is a "lawyer conspiracy," let me say that it is FOR YOUR OWN PROTECTION.

The issue confronting entrepreneurs who want to just "license" their concept is that it is very difficult under existing law to craft a program that avoids the legal definition of a "franchise" or "business opportunity." It can be done BUT any misstep can subject the start-up "licensor" to federal and state violations, forced rescission of deals, penalties, attorney fees and even criminal prosecution.

In short, by the time a lawyer reviews the FTC Rules (franchise and business opportunity), 15 state franchise laws and 26 state business opportunity laws, searching for the exact "license" program that will in theory skirt these 43 laws, you may as well comply with the franchise laws. And, by choosing compliance, you gain a form of insurance.

While space does not allow a full discussion of the benefits of franchise compliance, let me offer one example: Ohio (where I practice) has a business opportunity law. That law can be completely avoided via an exemption  if the seller "complies in all materially respects" with the FTC Rules - under the FTC franchise rule this means providing a Franchise Disclosure Document to potential buyers. This is a pretty nice insurance policy. A "licensing" program that meets the definition of Ohio's business opp law that has NOT provided a compliant disclosure document, will have NO insurance.

And, as we move outside of Ohio, more examples exist. If you want to review some of these laws, visit the Resources tab on my website.

Memorial Day - Helping Vets

Amid all the sales, the onset of summer, cookouts and parades ...let's not forget that Memorial Day is for remembering and honoring those fallen military members who have sacrificed their lives for the rest of us.

While we can only remember and honor those who are gone, our surviving members deserve your acknowledgment of gratitude and respect as well.

The franchise community pays its respect to Veterans everyday with a number of programs to assist vets to get into a franchise business - with guidance and discounts. If you know a vet who wants to get into a franchise business, pass on the info below:

VetFran - a strategic initiative with the International Franchise Association to "Provide Access and Opportunities in Franchising to Our Nation’s Veterans and Their Spouses."

VetFran Directory - over 600 franchise companies participate in the program. Their company profiles, as well as the financial incentives they offer to veterans, can be viewed in the VetFran Directory.

Entrepreneur Magazine - Top 10 franchises for Veterans.

Enjoy your holiday but take a moment to honor the brave!

Does Franchising "Suck"?

I left you alone for a few weeks - "pesky" clients, franchise registrations, mediations and other work matters have dominated my time (thanks to the franchise gods) ... and nothing was striking my fancy to rant ... uh, blog about until I came across two articles.

The articles: Why Being a Franchise Owner Sucks (The Business CheatSheet) and Does the Franchise Industry Need Reform? (Blue MauMau). So you see I am not responsible for the bawdy title of this blog. Come'on its in quotes!

Both articles draw from surveys and analyses done by FranchiseGrade.com (never heard of them until I saw the articles but I see from their site that they have an impressive advisory board that includes some of my colleagues from the American Bar Association's Forum on Franchising.)

As you may guess from the titles of the articles, some franchise owners are not happy. Here are few excerpts:

• More than half of franchise owners think that they don’t make a fair profit

• 91% of those surveyed were in debt, and around 66% operate at a loss or are breaking even

• The average turnover rate is almost 10% per year

• 10% of all closures are folks not renewing their franchises

• FranchiseGrade estimates that over 50% of franchises do not make it full term (this sounds high to me)

• 2% of all franchise systems account for 55% of all terminations

So who is at fault? Being "The Franchise Contrarian" my answer may surprise you (or not). 

I place fault on the franchise buyers. It is a marketplace people! Franchises are being sold in all manner of businesses, in all shapes and sizes, sometimes by people who just have a concept, not a fully-functioning business! There is no "permit" or "license" to become a franchise-seller, no governmental agency "approving" the success or quality of these businesses, no industry program vouching for the legitimacy or financial stability of franchise concepts. 

Now we do have disclosure requirements and some states have registration schemes. But my observation is that most buyers DO NOT conduct enough due diligence, do not hire experienced franchise counsel, do not grasp what it may take to turn a profit, and think that all franchisors have the pot of gold at the end of the rainbow.

So yes, in this marketplace of franchised businesses, "Buyer Beware" - use the tools that the regulations provide and stop buying under-performing franchises and untested concepts.

Ohio State Bar Assn - Franchise Law Seminar

If you are in the neighborhood (Columbus or Cleveland, Ohio that is) on May 13th and want to pick-up a few franchise pointers, I will have the privilege - along with my colleagues Judy Marsh (Vorys), Herb Hedden (Vorys) and Brian McMahon (Shumaker, Loop) - of presenting "Franchising in Ohio: What Every Lawyer Needs to Know" at the Ohio State Bar Association.

Judy, Herb and Brian are among the best franchise lawyers in the nation and willing to generously share their knowledge ... me, not so much. See you there!

Here is the promotional spiel: 4.0 total CLE hours CLE Program 15-218 |

Description

This dynamic and interactive program will educate Ohio Lawyers on the nuances of the patchwork quilt of federal and state franchise/business opportunity laws with an emphasis on representing Ohio-based franchisees from the time of purchase to dispute resolution. The presenters will focus on the Franchise Explosion, Overview/History of FTC Rule, Ohio's Business Opportunity Law, representation of Ohio-based franchise purchasers and dispute resolution involving Ohio-based franchises. With their extensive and varied backgrounds in franchising, the presenters will offer an experience-laden, fast-paced, practical workshop. The panel will weigh-in on all topics for a lively and multi-dimensional presentation.

Expansion Temptation!

From time to time, business owners visit with me and ask about expanding their businesses through franchising. That's good, they're in the right place. And, then they inform me that their interest was triggered by a visit from a solid business person who wants to open a unit in RUSSIA or some other international location. Of course, the business owner is gun-ho to get the deal done.

Now mind you, they have only one location, have not opened any other units and have not offered a franchise domestically. In other words, they do not have a proven concept. They have not trained a single franchisee.

So my answer is NO!

While international expansion through franchising is do-able  - legally and from a business standpoint - international expansion is NOT the way to gain your franchise-chops. Resist this urge.

Indeed, I often advise new franchise systems to expand slowly, with a deliberate plan and with great caution. Why?

First, you do not want to expand beyond your support infrastructure. Especially with your initial core group of franchisees. They need support and you need to provide it to make them successful. And, if they are successful, you will have your best sales tool to sell additional franchises.

Next, you have a lot to learn: standardized operations, training, local suppliers, demographics, marketing and legal requirements for you and the franchisees. It is difficult to learn from your franchisees if they are 10,000 miles away!

Of course, there are many more reasons why you should not jump into the international pool before you launch a domestic franchise program ... but you get the picture.

So resist the temptation to go international too early. In fact, develop a solid domestic expansion plan and stick to it. You will succeed by first helping your franchisees succeed.

Janitorial Franchises - Is it just a Job?

It is seldom that I "call-out" an entire category of franchised businesses but commercial janitorial franchises have grabbed my attention. And not because I believe they offer a great investment opportunity.

To the contrary, I am calling them out because low-cost commercial janitorial franchises raise a number of concerns. Of course, I cannot paint a dire picture of every buyer of these franchises (and I am sure there are successes) but, based on my experience with a number of clients, I must say there are grounds for caution.

And apparently the State of California and others agree with me. California has published the California Brochure on Buying a Janitorial Services franchise. I have never seen a state focus on an industry like this. And, the typical structure of janitorial franchises and the perceived "unfairness" have spawned a number of creative lawsuits.

With some janitorial franchisee clients I have seen:

• sales made without disclosure documents being provided
• poorly drafted franchise agreements
• assigned accounts drying up shortly after start-up
• franchisor control over accounts and receivables 
• high royalty or "administrative" fees, and 
• non-payment by the franchisor or sub-franchisor to franchisees on collections

Typically, the folks who buy these franchises cannot afford to hire a lawyer, have no business background, are minority individuals or new to the country and really just want a job. But, the buyers have one thing in common: they are hard-working individuals trying to get ahead. To some degree, I believe this makes them more vulnerable to the lure of these low-cost investments.

Unlike other franchise opportunities where franchisees are trained, set-up with a location and given operational control - janitorial franchisees do not control their accounts or paydays. The usual set-up is that the franchisor gets the accounts, bills the accounts and collects the accounts. The franchisee does the grunt work and looks to the franchisor - not the customer - for its "pay." Is this a business or a job?

This system of "franchisor controlled customers and proceeds" has led some courts to declare these janitorial "franchisees" to be "employees" rather than "independent contractors." The case of Awuah v. Coverall ultimately led to numerous court proceedings and a settlement after a lower court in 2013 rendered a $4.8 million judgment against Coverall.

The reason these types of suits occur is that lawyers seek creative ways to challenge franchise abuses when traditional approaches fail or may be economically impractical. (Did this trigger the current NLRB's General Counsel's opinion that franchisors may be "joint employers" of franchisees's employees? Click here for a related post)

Bottom line: Buyers should proceed with great caution. Janitorial franchise systems should clean-up their act and the International Franchise Association and other franchise systems should pressure them to do so - they are giving franchising a black eye!

Mediating Disputes

“Seek First to Understand, Then to be Understood.”

            Stephen R. Covey

Many franchise agreements and other commercial contracts call for mediation of disputes. It is an excellent way to preserve a relationship rather than end it. So I've decided to jump into the pool to help ...

After 37 years of practicing law with extensive litigation experience, I am pleased to announce that I am offering my services as a Mediator in franchise, commercial, employment, securities and real estate disputes.

I have mediated dozens of matters for my many commercial and personal clients to successful conclusions and I firmly believe in the process. Lawyers, as trusted advisors, are the key to the best resolutions and I see my role as a facilitator of their skills and efforts.

Recently, I completed a 40-hour mediation course and continue my active law practice focusing on franchising, general commercial litigation, employment matters, shareholder/partner disagreements, real estate matters and general corporate matters.

During my career, I have served as General Counsel to a restaurant franchise company as well as to the Ohio Petroleum Dealers and Repair Association. I have practiced in large and small firms and appreciate the challenges of each. ColumbusCEO Magazine recently profiled me as a 2015 Top Lawyer.

Based on my background and experience, I will offer a balanced approach as a qualified neutral. If you would like a copy of my resume, please let me know. Feel free to contact me at jmeaney@zainolawgroup.com or 614-975-9876.

Please keep me in mind for future referrals. Thank you.

More information available soon at www.MediatorOhio.com and www.OhioFranchiseMediation.com

Jim Meaney is a lawyer with the Zaino Law Group in Columbus, Ohio. Jim has represented franchisors and franchisees for 30 years. Jim is a co-author of “Starting a Franchise System: Practical Considerations, Planning and Development” and author of How to Buy a Franchise. 

Visit www.fddlawyer.com or www.ohiofranchiselawyer.com for more information or contact Jim directly at 614.975.9876 or jmeaney@zainolawgroup.com

What's a Franchise?

To bring you these dynamic and timely posts I read an encyclopedic amount of info ... Not. Really I just use Google Alerts and then make up the rest.

But it struck me when reviewing Google Alerts last Friday why people may be confused about what a franchise is -- here are the headlines (not making up this part):

• Friday the 13th Part III: How an '80s horror franchise bet it all on 3-D
• Kyrie carries Cavs with franchise-record 57-point effort
• How a Love of Nature Became a Thriving Franchise 
• Frozen 2 the Tip of Disney's Film Franchise Iceberg
• CBS '48 Hours' franchise on lookout for cold cases
• Is Robert Pattinson 'Underrated'? David Cronenberg SLAMS 'Twilight' Franchise 'Silliness'

The term is so widely used in various contexts that it is no wonder entrepreneurs are confused. (Just check the Franchise News feed to the right on this site powered by Google Alerts) However, buyers and sellers of business ventures do need to distinguish between legally-regulated "franchises" (and "business opportunity plans") AND the Twilight Franchise. 

As I mentioned in earlier posts (Let's Just Sell Licenses!): In today’s “start your own business”-“business opportunity”-“franchise”-“license” “distribution”-world, it is very difficult to offer a program that, legally speaking, is not considered a “franchise.” Otherwise you are likely operating from inside the Twilight Franchise or perhaps the Twilight Zone.

We will not attempt to explore here all the possible scenarios or definitions of “franchises” and “business opportunities” but suffice it to say that if (1) you charge an upfront fee, (2) offer any type of assistance (educational, marketing, accounts, equipment/inventory acquisition) in helping someone start a new business that you happen know a little something about and, (3) simply tell them that there is a market for this stuff or make any other representation that generally persuades people to follow your successful lead – you may have just sold a regulated business venture or franchise without the proper disclosure information. 

So tread lightly - whether you are buying or selling a business concept.

Jim Meaney is a lawyer with the Zaino Law Group in Columbus, Ohio. Jim has represented franchisors and franchisees for 30 years. Jim is a co-author of “Starting a Franchise System: Practical Considerations, Planning and Development” and author of How to Buy a Franchise. 

Visit www.fddlawyer.com or www.ohiofranchiselawyer.com for more information or contact Jim directly at 614.975.9876 or jmeaney@zainolawgroup.com

Dayton Flyers Snubbed - Madness Begins Early!

OK so this is not a franchise topic ... but as many who follow this blog know, I am Dayton Flyer. Our crown jewel is our often-underrated basketball program.

This year, after a sensational season (coverage below), the MAD-HATTERS of the NCAA Selection Committee are making the Flyers "play-in" to the tournament in the First Four games. Did they fall down the rabbit hole? Do we need to drug-test the committee?

Dayton finished 25-8 overall, 13-5 in A-10 (second only to Davidson), came in second in the A-10 Tournament to VCU (who they beat in the only regular season meeting). won ALL home games and did this with one hand tied behind their backs (6 original scholarship players, 7 active players with essentially no back-ups and no one taller than 6'6').

I will not plagiarize Hall of Fame baseball writer Hal McCoy's comments here - but a snippet tells us why Flyers Fans have reason to complain:

[The Committee] put UCLA (20-13) in the tournament. They not only put 13-loss Xavier in the bracket, they gave the Musketeers a No 6 seed. They gave the University of Cincinnati (22-10) a No. 8 seed. (Note: Hal lives in Cincinnati!) They put Texas (20-13) and Indiana (20-13) into the field. They placed Ohio State (23-10) into the tournament. And they gave Virginia Commonwealth, a team Dayton beat on VCU’s court, a No. 7 seed.

So what is up? The only thing Flyers fans can say is that the Committee must be motivated by something other than merit. Money ... for their already outrageously profitable venture? (it is over $1 Billion) Who knows?

Flyers Fans can only hope that the SNUB serves as motivation to the Flyers to run their bracket (Elite 8 last year). Coach Miller was gracious in his comments and we hope that the Flyers team can make us proud - win or lose!

Now that I have that off my chest, another franchise post will be published soon.

Old Business - New Franchise

OK so I love this Zip Yard concept (see video below or click here) because it takes a traditional business concept and capitalizes on it through the franchise model. And, it demonstrates how the development of a franchise concept can be a global proposition. See the video below.

What is your concept?

Jim Meaney is a lawyer with the Zaino Law Group in Columbus, Ohio. Jim has represented franchisors and franchisees for 30 years. Jim is a co-author of “Starting a Franchise System: Practical Considerations, Planning and Development” and author of How to Buy a Franchise. 

Visit www.fddlawyer.com or www.ohiofranchiselawyer.com for more information or contact Jim directly at 614.975.9876 or jmeaney@zainolawgroup.com

What is the best franchise to buy?

While walking on the Ft. Meyers beach last week, a good friend asked: "Jim, what is the best franchise out there to buy?" This simple question often catches me off-guard. You would think after 30 + years of doing this stuff I would have a stock answer!

But I don't ... this is because one-size does not fit all.

The answer lies in your personal interests, business background and due diligence. Now, that does not mean that there are not lists of the largest, most popular, most franchise sales, etc. Entrepreneur Magazine's Franchise 500 is probably the best well known source.

The 2015 top five are listed as Hampton Hotels, Anytime Fitness, Subway, Jack in the Box and Supercuts. Click here for the top 10.

After referring my friend to the Franchise 500, I asked him what his interests are and how this may relate to his interest in owning a franchise. Anyone will tell you that most people succeed in business because it matches something they truly enjoy. It keeps the motivation level high. But, after identifying your interests, do not fall down on the due diligence.

First, if you do not know anything about franchising, you may want to read a book or guide about it. My book, How to Buy a Franchise, is one of many out there. The Franchise Disclosure Document is your next resource. Every franchisor has one and it gives you the A to Z of the company and its system. But, don't stop there - the FDD carries a list of franchisees with their contact information - call or visit them with a prepared list of questions. (And, in an upcoming post, we will discuss going beyond the items covered in the FDD)

As I told my friend Joe, tread carefully and learn as much as you can before deciding. The best franchise is the one that suits your interests, has a good operating system and track record, has a good following and reputation and respects the suggestions of its family of franchisees.

Good hunting!

Jim Meaney is a lawyer with the Zaino Law Group in Columbus, Ohio, who has represented franchisors and franchisees for 30 years. Jim is a co-author of “Starting a Franchise System: Practical Considerations, Planning and Development” and author of How to Buy a Franchise. 

Visit www.fddlawyer.com or www.ohiofranchiselawyer.com for more information or contact Jim directly at 614.975.9876 or jmeaney@zainolawgroup.com

Franchise Buyers Don’t Need a Lawyer – Yeah Right!

Before I head to Florida for a little sunshine, let me leave you with this ...

Okay, so I am biased. But it is a well-developed bias based on years of experience and shattered dreams. And years of hearing the same refrains: “I couldn’t afford a lawyer when I bought my franchise,”  “I used the lawyer who drafted my will and he said the contract was fine,” and “I heard I would be wasting my money because the franchisor would not change the contract anyway.”

These excuses are first usually heard when I meet with a franchise owner who is now asking for advice regarding their dissatisfaction with their franchise relationship. Too late. That is, sometimes it is too late to help them.

The best time to seek the help of knowledgeable franchise counsel is before you buy a franchise. Here are the top 10 reasons why:

1. Franchising is complicated.
2. Unless you have a lot of experience buying franchises, you don’t know what to look for.
3. If you cannot afford a qualified franchise attorney, you cannot afford the franchise.
4. Lawyers who do not practice franchise law cannot effectively help you.
5. Qualified franchise lawyers can educate you on the best way to search for a franchise and how to use their services.
6. Qualified franchise lawyers start with an investigation of the franchise system and the Franchise Disclosure Document, not the franchise agreement.
7. Good counsel can help you avoid selecting the wrong franchise.
8. Knowledgeable franchise lawyers have resources and connections that you don’t.
9. Proper negotiation of a development or franchise agreement is a matter of timing and nuance.
10. The cost of a good franchise lawyer may not be more than 1-3% of your overall investment.

There are many other reasons but you get the picture. Lawyers who practice regularly in the franchise arena (many of whom are members of the American Bar Association Forum on Franchising) can “read between the lines” of a Franchise Disclosure Document, know what is missing, and are able to detect a bad deal or even a scam.

The most effective use of a franchise lawyer may be taking a pass on that franchise deal that could have resulted in the loss of your home, retirement fund and savings account, not to mention that loan from your mother.

Choose wisely my friends … but choose an experienced franchise lawyer first!

Jim Meaney is a lawyer with Zaino & Humphrey, LPA in Columbus, Ohio who has represented franchisors and franchisees for nearly 30 years. Jim is a co-author of “Starting a Franchise System: Practical Considerations, Planning and Development” and author of How to Buy a Franchise. 

Visit www.fddlawyer.com or www.ohiofranchiselawyer.com for more information or contact Jim directly at 614.975.9876 or jmeaney@zandhlpa.com

Franchising Marijuana - Part Three - Trademarks

So, if you have inhaled enough knowledge from Part One and Part Two, it is time to start making some observations about how all this may fit into a franchise model ... or not! Keep in mind (if you can after all that inhaling and ingesting) I do not have answers, only observations. And, perhaps through some comments added to this post, others can offer theirs.

WARNING: this can get technical so put aside those brownies!

Let's start with one of the bedrocks of franchising: the Trademark. So important is this piece that the Franchise Disclosure Document devotes Item 13 to it. And, if a franchisor has not secured federal registration for its mark, a disclaimer must appear in FDD Item 13: "We do not have a federal registration for our principal trademark. Therefore, our trademark does not have as many legal benefits and rights as a federally registered trademark. If our right to use the trademark is challenged, you may have to change to an alternative trademark, which may increase your expenses."

As we learned in Part Two, however, federal trademark registration is not available for "illegal" products. And, under federal law, 21 USC Secs. 801-971 (Controlled Substances Act), marijuana is illegal; thus, a federal agency like the USPTO is not able to register a mark related to illegal products. So what to do? (what follows assumes that the mark will meet the general requirements to register any mark)

• If pot is legal in a state (say Colorado), the franchise system can likely register the mark with the Secretary of State of the state where it is legal and perhaps in other states where it is legal too (although some use (of the mark, not the weed) in that state may be required)
• Even though federal registration is preferred and state registration may be available, trademark rights are primarily gained through first use - so using a mark and keeping records of the use may gain "common law" rights to the mark. And "common law" rights are derived under state law;
• Consider whether there is a mark that is related to the "franchise system" and not the illegal product. (This is based on some commentators' suggestions that you should seek registration for related, non-cannabis products but be careful not to use those marks in relation to cannabis-related items) Now, I am not suggesting you try this alone or without the professional assistance of a trademark lawyer. Assuming that the goal is to secure a federal registration of the mark by attempting this, you will likely have an uphill battle at the USPTO and need a good lawyer.

Any other suggestions out there?

Jim Meaney is a lawyer with Zaino & Humphrey, LPA in Columbus, Ohio who has represented franchisors and franchisees for nearly 30 years. Jim is a co-author of “Starting a Franchise System: Practical Considerations, Planning and Development” and author of How to Buy a Franchise. 

Visit www.fddlawyer.com or www.ohiofranchiselawyer.com for more information or contact Jim directly at 614.975.9876 or jmeaney@zandhlpa.com

Franchising Marijuana - Part Two

Left you hanging in Part One of Franchising Marijuana ... because I hear that when ingesting cannabis it is best to take small bites! A few legal bites here ...

I left off observing that "The legal issues surrounding the marijuana industry are hyper-complex and challenging for all concerned ... even for franchise attorneys." And, when we overlay legal and business issues particular to franchising on any marijuana-related business, the complexity-calculus grows.

First, in this post, the general areas of concern confronting pot-trepreneurs (making no distinction between medical and recreational cannabis) and potential franchise systems:

• Marijuana is illegal under Federal Law - 21 USC Secs. 801-971 (Controlled Substances Act)
• It is illegal in most states and still a criminal offense (not decriminalized)
• Even in states where it is legal concerns abound about prosecution under federal law
• Due to federal illegality, a host of business issues arise:
• Banking restrictions - banks fear depositing the money and authorizing credit-card merchant accounts
• Cash only business - what to do with all that cash?
• Inability to obtain insurance
• Taxation penalties or limitations - no deductions for business expenses
• No ability to secure a federally-registered trademark
• Application of Food, Drug and Cosmetics Act
• Possible asset-forfeiture lawsuits against landlords
• Ethical concerns for attorneys counseling clients involved in "illegal" activities and potential loss of attorney-client privilege

While the federal government is "laying-off" prosecutions in most states that have legalized the wicked weed and state bar associations are revising ethical rules to give attorneys some representational-leeway, uncertainty remains. More can be said here ... but this is a blog ... and we are taking small bites.

Part Three will take a few more bites.

But if you want to read more now, I recommend an article written by my franchise-lawyer colleague, Elliot Ginsburg, Medical Marijuana Franchising: A Half-baked or Fully Baked Plan?, that appeared in the American Bar Association's Forum on Franchising's The Franchise Lawyer (Summer 2012).

Jim Meaney is a lawyer with Zaino & Humphrey, LPA in Columbus, Ohio who has represented franchisors and franchisees for nearly 30 years. Jim is a co-author of “Starting a Franchise System: Practical Considerations, Planning and Development” and author of How to Buy a Franchise. 
Visit www.fddlawyer.com or www.ohiofranchiselawyer.com for more information or contact Jim directly at 614.975.9876 or jmeaney@zandhlpa.com