October 2011 Archives

It is critical for brand owners to monitor and protect their trademarks on an ongoing basis.

While Nike and Best Buy have been in the news recently for their trademark monitoring and enforcement efforts, trademark monitoring is not just for the mega corporations--all business owners need to monitor and protect their trademarks.   Trademark monitoring is especially critical for franchisors, whose business models - and franchisees - rely heavily on the strength and reputation of their brands. ;

There are four benefits to an ongoing trademark monitoring program.

Benefit No. 1: Identify and Address Potential Infringers Before they Create Problems for Your Business

One of the primary functions of trademark monitoring is to discover and proactively address both active and would-be infringers who adopt trademarks or purchase domain names that are confusingly similar to your own.

Federal law protects valid trademarks from unfair competition caused by consumer confusion, and monitoring the web for both knock-offs and unintentionally similar trademarks serves to protect and maintain a business's exclusive trademark rights.

In addition to being highly important from a legal perspective, preventing consumer confusion is also crucial to maintaining the business generally and to protecting the value of the brand. Trademark infringement disputes can easily value into the millions of dollars where one company's use of an infringing trademark siphons business from the rightful trademark owner. Even where litigation results in recovery of damages for lost profits, the damage from infringement caused by loss of opportunities and a reduced customer base can continue to have debilitating effects for the business as a going concern.

Importantly, consumer confusion can result not only from the presence of identical competing trademarks, but also from the presence of trademarks that are confusingly similar or that appear related. As a result, a broad and strategically-planned trademark monitoring strategy is necessary to protect your business.

Business owners have to stop infringement before it starts, and this purpose can be served through ongoing trademark monitoring. Infringers may be more likely to comply with simple cease-and-desist demands if they haven't already spent tens or hundreds of thousands of dollars promoting a brand they thought was theirs for the taking.

Benefit No. 2: Addressing Consumer Reactions and Competitors' Representations

Consumer Reactions

By instituting a formal and comprehensive monitoring program, brand owners can keep tabs on and promptly respond to consumer sentiment expressed in forums, complaint sites and social media.

This applies to both positive and negative references.

On the positive side, an effective trademark monitoring program allows business owners to take advantage of positive consumer feedback to further develop their product/service lines and marketing strategies in line with demand. On the negative side, active monitoring can be critical to combating widespread circulation of damaging comments. The response should be different for valid and invalid comments, but either way a response is critical to protecting the value and goodwill of your brand.

From a legal perspective, this is important for a number of reasons, ranging from avoiding claims of "abandonment" of the business's trademarks to building a record in the event that a legal claim is filed.

Competitors' Representations

With regard to competitor representations, trademark monitoring serves a number of important functions as well.

These representations can take the form of comparative advertising, negative "reviews", domain names, social media accounts, and PPC advertising keywords that show their websites instead of yours. Each of these constitute means by which a competitor can seek to either (i) damage your brand directly through negative imagery, or (ii) damage your brand indirectly by usurping (in many cases, improperly) the goodwill of your brand to their own benefit.

No matter the situation, by regularly monitoring this type of conduct, brand owners can maximize their ability to protect the value and goodwill of their brands.

Benefit No. 3: Monitoring Licensees and Franchisees

"Licensees" can take a number of forms: franchisees, as well as, online affiliates, independent sales representatives, retailers, and distributors to name a few others. Generally speaking, anyone who a business allows to represent or sell their products in the marketplace is going to be a "licensee."

Federal law requires trademark owners to monitor licensees' use of their trademarks (it's true, and few small business owners know this), and failure to do so can actually lead to a determination that the trademarks have been "abandoned." Once a trademark is deemed abandoned exclusive rights are lost, and the possibility of regaining exclusivity is next to none.

Within this framework, monitoring of licensees serves a number of important functions--both legal and business.

First, trademark owners must make sure that licensees are making proper use of their trademarks. Generally speaking, trademarks must be used as adjectives--not nouns or verbs (legally speaking, trademarks are "indicia of origin," and as such must modify the product or service description, as opposed to constituting the description itself).

Allowing licensees to use trademarks as nouns or verbs can lead to a determination that the trademark is merely a generic or descriptive term, which can ultimately lead to a finding of abandonment.

Second, trademark owners must monitor franchisees, affiliates, sales reps and distributors to make sure that they are not engaging in misleading advertising, are not disparaging your trademarks in favor of a competing brand, and are also taking adequate measures to promote the brand.

The contracts with these individuals should impose limitations and obligations in these regards, and trademark monitoring serves the companion purposes of making sure licensees are both meeting their contractual obligations and otherwise conducting their campaigns in an appropriate manner.

Other situations where trademark monitoring serves similar purposes are where a trademark owner grants "certifications" and needs to make sure certified entities or individuals are meeting their obligations, and in franchising.

Among the host of obligations franchisors and franchisees have to one another, proper use and promotion of the franchisor's trademarks is in the forefront.

Benefit No. 4: Keeping Tabs on Competitors

While the first three benefits of brand monitoring that I discussed focused on protecting and maintaining the value of a brand owner's own trademarks, this benefit turns its eye toward the trademarks of your competitors.

Traditional trademark monitoring techniques can also be used to monitor the innovations and marketing strategies of your competitors. Monitoring their trademarks, domain names and social media activity (in addition to your own) allows you to keep abreast of recent updates and future releases for their product/service lines, and also lets you know what strategies they are using--either effectively or ineffectively--to promote their brands. This, obviously, can be extremely valuable information.

In addition, monitoring competitors' trademarks can also turn you on to other, less direct references and comparisons to your brand. If a competitor makes reference to "the other guy" or "the green and orange brand," and "the other guy" or "the green and orange brand" is actually (and apparently) you, this is something you are probably going to want to know about.

While not indicative of trademark infringement, these references may be part of false or misleading advertising claims that you do not want to let go unchecked. However, these sorts of indirect references are likely to go undetected unless you are monitoring your competitors' trademarks.

Conclusion

In summary, trademark monitoring services are critical to protecting, enforcing and maximizing the value of your company's brands. A sound and comprehensive trademark monitoring strategy will allow you to:

• Spot and promptly address instances of actual and potential infringement;
• Promptly respond to consumer reactions and competitor representations online;
• Make sure distributors, affiliates and other licensees are making proper use of your trademarks; and,
• Keep tabs on the competition and identify indirect references to your company's products or services.

Armed with this information, your company will be better positioned to protect its interests and, ultimately, maximize the value of its trademarks when it comes time to sell.

This guest post  is provided for informational purposes only, and does not constitute legal advice. Always consult an attorney before taking any action that may affect your legal rights or liabilities.

Jeff Fabian is the owner of Fabian, LLC, a boutique law firm that assists business owners in protecting their brands so that they can stay focused on running their businesses. Visit eTrademarkSolutions.com for more information, or follow Jeff on Twitter @jsfabian.

This article will separate the optimists from the pessimists on the important subject of “fairness” in hotel ownership. Hopefully, we will make an optimist out of even the most cynical readers amongst us.

We begin with a simple question: Which of the following is the most likely to occur first?

a) America’s leading hotel franchisors will voluntarily embrace AAHOA’s 12 Points of Fair Franchising.

b) The U.S. Congress will pass comprehensive “fair franchising” legislation (or the Federal Trade Commission will enact a new regulation) that effectively implements the 12 Points and makes further efforts by AAHOA members unnecessary.

c) The U.S. Supreme Court will decide a “fair franchising” case that establishes, once and for all, that liquidated damage clauses (and other contract provisions to which franchisees usually object) are “unconscionable” because they “shock the conscience” of the Court.

d) None of the above.

Obviously, if you answered (a), (b), or (c), you have an optimistic nature, while those that say (d) are probably doomed to spend their lives as pessimists. We respectfully submit that too many observers of franchising are far too pessimistic about the prospects for “fairness in franchising”; in the balance of this article we hope to persuade you to join the optimistic camp as well!

Furthermore, for the optimists, we are going out on a limb to say that the correct answer is (a), that the franchisor community will voluntarily embrace the 12 Points of Fair Franchising long before fair franchising is imposed upon them by law.

That said, the pessimists unfortunately have a lot of history on their side that cannot be ignored. Like a voice in the wilderness, the first known calls for “fair franchising” came nearly 40 years ago when a dedicated Boston lawyer, the late Harold Brown, decried the commonality of franchise agreement provisions that left most franchisees vulnerable to a total loss of equity in their investment. Two obvious examples were provisions that allowed arbitrary terminations, and liquidated dam- ages clauses that make it hard, or impossible, to extricate oneself from a failing brand or a bad deal.

Over the last 40 years, there have been many attempts to “level the playing field”. Among the high- lights, or lowlights, in 40 years of “Fair Franchising” efforts:

1) The FTC in the late 1970’s en- acted franchise regulation, but the FTC Franchise Rule has always been limited to the regulation of what the franchisor must disclose to prospective franchisees, without regulating the contents of franchise agreements or imposing limitations on franchisor conduct.

2) A handful of states enacted their own disclosure laws and some states have legislated against arbitrary terminations, but no state has en- acted comprehensive protection that would come anywhere near the protection for franchisees that AAHOA seeks in the 12 Points of Fair Fran-chising. No new state franchising legislation has been enacted in the last 20 years!

3) Efforts to enact a comprehensive federal fair franchising law peaked in the 1990’s, as the proposed legislation never made it to the floor of the U.S. Congress.

4) Judicial efforts to restrain franchisor conduct have historically centered on both efforts to impose fiduciary duties upon franchisors and efforts to hold certain clauses unconscionable. By and large, franchisors have beaten back efforts to establish fiduciary duties, as most courts see franchising as a two-way business relationship, and not as a fiduciary relationship akin to the relationship between a trustee and beneficiary. Likewise, there have been a handful of cases, mainly from the West Coast, in which courts have found some arbitration clauses in franchise agreements to be unconscionable, but at this time there is not a good precedent in any jurisdiction to argue that a franchise agreement that does not meet the 12 Points is unconscionable.

By and large, the courts have imposed a “good faith and fair dealing” standard on franchisor behavior in performing their contract duties; and of course, the courts remain willing to protect a franchisee from fraud in cases where it can be proved. Thus, it remains possible for individual franchisees to win specific cases, but because most individual, single unit franchisees lack the resources to fight back, the prospects of being defeated in individual cases has not persuaded franchisors to change the terms of their standard franchise agreements fundamentally. Being a good franchisor today remains more a matter of enlightened self-interest among those franchisors that desire “win-win” relationships with their franchisees, more so than any legal mandate.

5) Franchisees in a minority of systems formed independent franchisee associations in an attempt to engage in collective bargaining with their franchisors. There have been some notable successes on this front, but so far, the independent franchisee association movement has not gained serious traction toward the goal of negotiating agreements that are more palatable to the franchisee. Moreover, efforts by associations to bring system-wide litigation or arbitration to redress franchisee grievances have had mixed results, as it remains difficult to establish association “standing to sue” (or to obtain class action certification) in any case that depends on proof of franchisor conduct with respect to specific individual franchised locations.

6) Efforts to establish national umbrella franchisee associations (such as the American Franchisee Association and the American Association of Franchisees & Dealers) have achieved limited success as these organizations are perennially out- funded by the International Franchise Association, which speaks for franchisors.

7) The Federal Trade Commission in 2007-08 adopted the first serious amendments to its franchise rule since the late 1970’s. However, to the disappointment of most franchisee advocates, the FTC declined again to go beyond the regulation of the franchise sales process. Efforts to extend regulation to the contents of franchise agreement — or to franchisor conduct during the relationship or upon termination — were considered but rejected.

8) One bright spot, however, is that in the amended FTC Franchise Rule, franchisors must now disclose whether the franchisees in its system have created an independent franchisee association and whether the franchisor recognizes the association as legitimate. Other highlights/low- lights of the amended FTC Rule are that:

[T]he amended Rule requires more extensive disclosures on: lawsuits the franchisor has filed against franchisees; the franchisor’s use of so- called “confidentiality clauses” in lawsuit settlements; a warning when there is no exclusive territory; an explanation of what the term “renew- al” means for each franchise system . . . In a few instances, the amended Rule requires less than the UFOC guidelines — for example, it does not require disclosure of so-called “risk factors,” franchise broker in- formation, or extensive information about every component of any computer system that a franchisee must purchase.

9) Last but not least, AAHOA has adopted the 12 Points of Fair Franchising, but so far, the major hotel franchisors have been slow to embrace them.

Against this history, I remain very optimistic that franchisees — whom AAHOA correctly refers to as “hotel owners” — have a future that is much brighter than the past. How- ever, the question that we posed at the beginning of this article was a trick question. No great change in the direction of “fair franchising” will simply occur but instead this important goal must be achieved. Furthermore, franchised business owners in general and AAHOA members in particular have much greater odds of success in striving to achieve voluntary compliance with fair franchising standards for the simple reason that “self-help” is al- ways better than waiting for charity from others. To wait for the courts, the legislatures, or the regulators to rescue hotel owners from “unfair” contracts is to place your fate in the hands of others, who have much more funding, and to abdicate personal responsibility for your own future. That would be a tragic mistake, especially since all the ingredients for hotel owner success are readily at hand. Specifically, hotel owners will win the struggle for fairness when three things happen:

1) Enlightened hotel owners will decline to sign contracts that do not meet the standards established by the 12 Points of Fair Franchising. You would not buy a car that was unsafe and place your family in physical danger. Why would you buy a hotel on terms that are legally unsafe and thereby place your family in economic danger?

2) Taking advantage of the amended FTC Franchise Rule, hotel owners will create single-brand independent franchisee associations and demand recognition, and will demand the opportunity to collectively bargain the franchise agreement. Future hotel purchasers will scrutinize the Franchise Disclosure Documents that must now comply with the amended FTC Rule (replacing the old Uniform Franchise Offering Circulars or “UFOCs”) to see whether the particular brand has recognized its association.

3) Savvy hotel owners will explore alternatives to being franchisees. Two alternatives come readily to mind: Establishing cooperative associations, and becoming franchisors instead of franchisees. Both of these alternatives are very viable from a legal standpoint. The question is not whether these developments will occur, but when, and whether AAHOA members will be at the forefront.

Each of these three actions are steps to independence, and hence to fairness. As more and more hotel owners take these steps, there will very quickly come a tipping point at which the established hotel brands either will have to get on board with the 12 Points of Fair Franchising or lose franchise sales. By taking the steps outlined herein, hotel owners will change the game in their favor. Am I optimistic? You bet! 

Published in AAHO Lodging Business Magazine March 2009, by Carmen Caruso.