Dallas Bar Association
HEADNOTES
Focus International/Franchise & Distribution Law
June 2013 Volume 38 Number 6
DBA Hosts Mock Voir Dire
Law Day Luncheon
Staff Report
On May 3, local judiciary and attorneys attended the 2013 Law Day Luncheon at which Hon. Jane J. Boyle, of the U.S. District Court, (pictured with DBA President Sally Crawford) was the keynote speaker. In addition to awards presented to the winners of the Law Day Dallas ISD art and essay contests, the Dallas Association of Young Lawyers presented awards for Outstanding Mentor, Outstanding Young Lawyer and the Liberty Bell Award.
Focus
Law Day is an annual celebration of the U.S. justice system. One of the highlights for the Law Day Committee each year is conducting a mock voir dire program for Dallas ISD high school students. This program gives high school students the opportunity to visit the Dallas County courthouse, learn about the jury system and participate in a voir dire demonstration. The mock voir dire was held at the George C. Allen Courts building on April 12, 2013. Approximately 300 students from nine schools participated. DBA President Sally Crawford and Hon. Martin Hoffman (68th Civil District Court) welcomed the students. Hamilton Lindley, of Deans & Lyons, LLP, served as moderator of a panel discussion on the importance of voting. Panelists included Judge Hoffman, Judge Jane J. Boyle, of the U.S. District Court, and Vonciel Jones Hill, attorney and Dallas City Council member. The students were then treated to a demonstration of the voir dire process by several Dallas trial lawyers—Rob Bogdanowicz, of Deans & Lyons, LLP; Shonn Brown, of Gruber Hurst Johansen Hail Shank LLP; John Burkhead, of The Law Offices of Frank L. Branson, P.C.; Ophelia Camina, of Susman Godfrey L.L.P.; Trey Crawford, of Gruber Hurst Johansen Hail Shank LLP; Greg Deans, of Deans & Lyons, LLP; Brian Hail, of Gruber Hurst Johansen Hail Shank LLP; Rachel Montes, of Montes Law Group; and Eric Policastro, of Gruber Hurst Johansen Hail Shank LLP. The students served as members of the jury panel. Judge Hoffman along with Hon. Rob Cañas (County Criminal Court No. 10), Hon. Mark Greenberg (County Court at Law No. 5), Hon. Jeffrey Rosenfeld (County Court of Criminal Appeals No. 2) and Hon. Chris Wilmoth (Probate Court No. 2) presided over the proceedings. Following the demonstration, the students were given an opportunity to ask questions of the lawyers and the judges. The Law Day Committee thanks all those involved for helping to make this a premier event.
International/Franchise & Distribution Law
The Accidental Franchise by Kevin L. Twining
Do you have clients who distribute goods and services through licensees or distributors? If so, when drafting or reviewing agreements for those clients it is imperative that you consider whether the relationship between your client and the other party is actually a franchise, as franchise laws apply regardless of the name of the agreement or the contracting parties’ intention. Failure to recognize that an agreement creates a franchise under federal or state law could have significant consequences for both you and your client. Most people think they know a franchise (e.g. McDonald’s and Subway) when they see it. However, franchising is not an industry, but rather a method of distribution. Most franchise legislation contains broad language in defining a franchise relationship. Thus, there is a risk that certain common legal relationships, such as distributorships and trademark licenses, could be deemed franchises. The increasing complexity of commercial relationships has led to an expanding number of relationships that fall within the broad reach of the franchise laws and thus become accidental franchises.
A business arrangement that meets all three of the elements discussed below will be deemed a franchise, and thus trigger federal and state presale disclosure requirements. Additionally, potentially applicable state registration and relationship laws may restrict the conditions under which the relationship may be terminated or not renewed. Failure to comply with these laws may subject the violator to damages, rescission or, in certain circumstances, criminal penalties. For purposes of the Federal Trade Commission’s “Franchise Rule,” which applies in all 50 states, a business arrangement is a franchise if it meets three basic elements: (i) the right to use a trademark in connection with the offer, sale or distribution of goods; (ii) the payment of more than $500 during the first six months of the relationship; and (iii) significant assistance to, or control over, the grantee’s business. State law franchise definitions largely resemble the FTC’s Franchise Rule, with a few variations. The trademark element of a franchise is met if the business is identified by the licensor’s or manufacturer’s trademark or if the goods are identified by the licensor’s or manufacturer’s trademark, symbols or slogan, even if the agreement lacks an express trademark license.
The required fee element captures all sources of revenue paid to the grantor for the license or distribution rights. This element is broad and includes not only upfront fees and royalties, but also training fees, advertising fees and innocuous payments for sales manuals, demonstration kits or point-of-sale advertising. The one exception to this element is the payment of a bona fide wholesale price of inventory for resale so long as there is not a requirement to purchase excessive quantities. The significant assistance or control element is inherently subjective, and courts typically look at a variety of factors. It may exist if the licensor or manufacturer provides a training program, marketing advice, site location assistance or a detailed operating manual, or if the licensor or manufacturer mandates personnel policies or practices, establishes operating methods or standards, prescribes operating hours, or restricts the sales territory or customers that may be served. In certain circumstances, any one of these factors may be sufficient to establish significant assistance or control. The parties’ course of dealing and industry customs are also relevant. Since this element is inherently imprecise and involves a variety of
factors, the key is knowing what and how many factors are enough to tip the scale. Most trademark license agreements include some quality control provisions since an owner may lose rights in a trademark if it fails to exercise reasonable control over its use. The problem arises when the licensor begins to exercise too much control or provide too much assistance to other aspects of the licensee’s business operations. For example, a simple trademark license agreement may become a franchise if the licensor requires the licensee to undertake a specific marketing plan or if the licensor provides a training program for the licensee. Likewise, a distribution agreement may be deemed a franchise if the manufacturer provides an operations manual or site selection assistance or requires specific hours of operation. Knowing the elements of a franchise and the line that separates a trademark license or distribution agreement from a franchise will allow you to protect your client (and you) from incurring liability for failing to identify the HN accidental franchise. Kevin L. Twining, a partner at Locke Lord LLP, chairs the firm’s franchise section. He can be reached at ktwining@lockelord.com.
Inside 5
Protecting the Franchise Against Unfair Competition
8
DBA and H|S|N|O Pro Bono Golf Tournament
11 What Every Attorney Should Know About Franchise Law 13 Bankruptcy and the Franchise Agreement
Mark Your Calendar for the
SBOT 2013 Annual Meeting The 2013 State Bar Annual Meeting is in Dallas June 20-22. For more information and to register, visit www.texasbar.com/annualmeeting.