Avoiding the Accidental Franchise (… and Why This Matters to You and Your Client)
Rochelle Spandorf | Davis Wright Tremaine LLP
Shelley Spandorf is a nationally recognized business franchise and distribution attorney with more than 35 years of experience representing franchisors, manufacturers, licensors, suppliers, franchisees, and distributors in their domestic and international expansion and strategic development.
On-Demand:April 11, 2023
$95.001 hour CLE
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The heart of every franchise contract is a trademark license. However, not every trademark license is a franchise. Knowing the difference between a franchise and a non-franchise trademark license is essential because franchises are highly regulated arrangements that require substantial pre-sale disclosure documentation and other compliance efforts to form a lawful franchise relationship without liability. On the other hand, ordinary trademark licenses and dealership and distribution arrangements are consensual, less-regulated alternatives. Misclassifying a business relationship as a license, distribution agreement, dealership arrangement, or by some other name is a common and costly mistake when it is a franchise. Significant consequences, including damages and rescission of franchise agreements as well as fines, penalties, freezing of assets, restitution, and personal liability of a company's management, can flow from noncompliance with franchise laws.
Franchise laws also regulate many substantive terms in franchise agreements like termination, renewal, dispute resolution, and transfer. As consumer protection laws, waivers of franchise laws are void. Consequently, a poorly drafted license, dealership or distribution agreement can result in the accidental creation of a franchise that may expose the brand owner to complicated and demanding laws and result in statutory protections for franchisees superseding the parties’ written agreement.
Understanding how franchise laws define a franchise may provide a brand owner with opportunities to structure the desired commercial arrangement to avoid franchise status lawfully. When structuring opportunities are not available without sacrificing important business goals, practitioners must appreciate the complex regulatory landscape and legal issues to represent franchise parties competently.
Key topics to be discussed:
How do franchise arrangements differ from non-franchise licensing, dealership and distribution agreements? What are the pros and cons of each?
What risks do businesses face if they inadvertently misclassify a franchisee as a non-franchise licensee, dealer or distributor or by some other name?
What federal, state, and foreign franchise laws apply when a business is determined to be a franchise, and what are the key legal requirements of each?
Date: April 11, 2023
Rochelle Spandorf | Davis Wright Tremaine LLP
Shelley Spandorf is a nationally recognized business franchise and distribution attorney with more than 35 years of experience representing franchisors, manufacturers, licensors, suppliers, franchisees, and distributors in their domestic and international expansion and strategic development. Shelley concentrates her practice on a broad spectrum of transactional and regulatory issues for clients in all industry sectors, from startups to mature public companies. Shelley assists clients with their contracts and legal compliance including preparing franchise disclosure documents, domestic and international franchise and distribution agreements, and registration filings. She counsels clients on franchise sales compliance duties, and advises franchise and non-franchise distribution systems on a broad array of operating issues ranging from contract enforcement to trademark protection, relationship disputes, antitrust and pricing matters, terminations and transfers, mergers and acquisitions, and implementation of system-wide changes.
Shelley has advised numerous companies on the issue of whether a particular commercial arrangement is a franchise. With significant experience on this issue, she not only has served as an expert witness in litigation, but has helped dozens of companies evaluate restructuring alternatives to avoid regulation as a franchise. Shelley supplies strategic litigation support in cases involving franchise agreements or where franchise status is an issue and represents clients in mediations and before government agencies in addition to serving as a mediator of franchise disputes.
Shelley assists companies in the acquisition of franchise and non-franchise distribution systems and corporate financing by providing franchise due diligence reviews and lead counsel services. On behalf of franchisees and area developers, Shelley also assists with the acquisition and sale of franchise rights and handles a broad range of transactional projects.
Shelley is chair of the firm’s franchise law practice, which received a Tier 1 ranking by US News. She is nationally ranked by Chambers USA as one of the leading U.S. franchise attorneys and recognized as a certified specialist in franchise and distribution law by the California State Bar. In 2013, Who’s Who Legal identified Shelley as one of the ten most highly regarded individuals in franchise law in the world, and the only woman earning this distinction in the U.S.
I. When does a trademark license qualify as a franchise | 2:00pm – 2:20pm
The 3-legged stool analysis | 2:00pm – 2:10pm
Variances among federal and state law definitions | 2:10pm – 2:20pm
II. Strategies for drafting licenses, dealership and distribution agreements to avoid accidental franchises | 2:20pm – 2:40pm
Trademark use | 2:20pm – 2:25pm
“Marketing plan,” “community of interest,” or substantial assistance/significant control | 2:25pm – 2:35pm
Franchise fee | 2:35pm – 2:40pm
III. Complying with federal and state franchise and business opportunity laws once when structuring alternatives are not available for avoiding franchise status | 2:40pm – 3:00pm