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Opponents to SB 610, led by the International Franchise Association (IFA), assert that under the legislation franchising would suffer greatly from lack of brand enforcement. The IFA also contends that franchisors would be forced to withdraw from California. SB 610, however, does not prohibit terminations by franchisors, but rather limits terminations to statutorily specified categories or for “substantial and material defaults” of franchise agreements. Currently the CFRA statute allows termination for “any” breach of a lawful franchise agreement provision. Most franchise agreements contain dozens and dozens ' sometimes hundreds ' of franchisee obligations. Moreover, as franchisors write their agreements, the ability to completely control terminations currently rests with franchisors. Borrowing from basketball, franchisees should not have their investments and businesses subject to threat of loss or termination due to a single ticky-tack foul. The substantial and material default requirement evens the playing field, while still allowing terminations for serious and egregious breaches.

The CFRA has long been criticized as a statute which does not meaningfully address the problem of franchisees losing their life savings, investments and livelihoods through wrongful termination and non-renewals. One of the most criticized aspects of the statute is now being addressed ' namely the remedies. The existing statute provides that the offering franchise must buy back the inventory of the franchisee for violation of the statute. California Business & Professions Code Section 20025. In Boat & Motor Mart v. Sea Ray Boats, Inc. , 825 F.2d 1285 (9th Cir. 1987), the Ninth Circuit decided this was the exclusive remedy.

Consider a sandwich franchisee who invested $350,000 to acquire and build out her franchise location, but is suddenly wrongfully terminated for no reason at all by her franchisor. Under current law, her remedy would be to have $2,000 of cold cuts, chips and drinks purchased by her franchisor, but she would receive nothing for her $350,000 investment. The amendments would allow her to be reinstated or to receive the fair market value for her franchise business.

The statute, as amended, may need a re-vote by the California State Senate, and timely approval by Governor Jerry Brown by September, 2014.

' Peter C. Lagarias

Franchisor Sued over Use Of Logo Similar to NJ's Garden State Parkway Logo

The New Jersey Turnpike Authority has filed a complaint seeking to protect its service mark from alleged infringement by a Florida restaurant franchise, the Jersey Boardwalk Pizza Co. The two-restaurant franchise, which advertises that it serves “authentic Italian food from Jersey,” has a logo that looks to the complainant Turnpike Authority disturbingly like its emblem for New Jersey's Garden State Parkway. The franchise not only displays this similar logo on its signage, but also sells merchandise with the logo on its website. In addition, according to the complaint, the defendants plan to expand their operations to reach outside of Florida, including by selling franchise rights to restaurateurs in New Jersey. The Turnpike Authority sent a cease and desist letter to the franchisor in April, prompting the company to apply for a service mark for its logo two weeks later. The Turnpike Authority then brought claims for service mark infringement, unfair competition under Section 43(a) of the Lanham Act, federal service mark dilution, common-law unfair competition and service mark infringement and unfair competition under N.J.S.A. 56:4-1.

Defense attorney JoyAnn Kenny of Marks & Klein contends that Jersey Boardwalk Pizza's logo should not be considered infringing because it is a restaurant chain and could never be confused with a highway agency. Plaintiff, however, counters that its service locations have restaurants ' some of which serve pizza ' and that consumers could become confused by the similarity. In addition, the Turnpike Authority does not want consumers to mistakenly conclude that it is affiliated in any way with the Florida pizza company.

' Janice G. Inman

California Franchise Legislation Advances

Pending California franchise legislation, designed to strengthen existing franchise statutes, passed a final legislative committee on June 24, 2010. The Assembly Business, Professions and Consumer Protection Committee approved SB 610 by a vote of 10 to 2. SB 610 (http://bit.ly/1rBUcfQ) now moves to a final vote by the entire California State Assembly.

The amended bill addresses needed changes in the California Franchise Relations Act (CFRA), amending the previous proposal which was primarily limited to a statutory duty of good faith in franchisee relations. The amended legislation contains three changes to the CFRA. First, the ability to terminate a franchisee under the CFRA for “any” breach of a franchise agreement would be tempered; a franchisor terminating a franchisee under the CFRA must establish “substantial and material” breach of a franchise agreement. Second, a franchisor would have to approve a transfer of a franchise agreement if the buyer meets the franchisor's standards. Third, the CFRA would provide an additional remedy; namely a wrongfully terminated franchisee would have the option of reinstatement or could receive payment of the fair market value of the terminated franchise as the measure of damages.

Opponents to SB 610, led by the International Franchise Association (IFA), assert that under the legislation franchising would suffer greatly from lack of brand enforcement. The IFA also contends that franchisors would be forced to withdraw from California. SB 610, however, does not prohibit terminations by franchisors, but rather limits terminations to statutorily specified categories or for “substantial and material defaults” of franchise agreements. Currently the CFRA statute allows termination for “any” breach of a lawful franchise agreement provision. Most franchise agreements contain dozens and dozens ' sometimes hundreds ' of franchisee obligations. Moreover, as franchisors write their agreements, the ability to completely control terminations currently rests with franchisors. Borrowing from basketball, franchisees should not have their investments and businesses subject to threat of loss or termination due to a single ticky-tack foul. The substantial and material default requirement evens the playing field, while still allowing terminations for serious and egregious breaches.

The CFRA has long been criticized as a statute which does not meaningfully address the problem of franchisees losing their life savings, investments and livelihoods through wrongful termination and non-renewals. One of the most criticized aspects of the statute is now being addressed ' namely the remedies. The existing statute provides that the offering franchise must buy back the inventory of the franchisee for violation of the statute. California Business & Professions Code Section 20025. In Boat & Motor Mart v. Sea Ray Boats, Inc. , 825 F.2d 1285 (9th Cir. 1987), the Ninth Circuit decided this was the exclusive remedy.

Consider a sandwich franchisee who invested $350,000 to acquire and build out her franchise location, but is suddenly wrongfully terminated for no reason at all by her franchisor. Under current law, her remedy would be to have $2,000 of cold cuts, chips and drinks purchased by her franchisor, but she would receive nothing for her $350,000 investment. The amendments would allow her to be reinstated or to receive the fair market value for her franchise business.

The statute, as amended, may need a re-vote by the California State Senate, and timely approval by Governor Jerry Brown by September, 2014.

' Peter C. Lagarias

Franchisor Sued over Use Of Logo Similar to NJ's Garden State Parkway Logo

The New Jersey Turnpike Authority has filed a complaint seeking to protect its service mark from alleged infringement by a Florida restaurant franchise, the Jersey Boardwalk Pizza Co. The two-restaurant franchise, which advertises that it serves “authentic Italian food from Jersey,” has a logo that looks to the complainant Turnpike Authority disturbingly like its emblem for New Jersey's Garden State Parkway. The franchise not only displays this similar logo on its signage, but also sells merchandise with the logo on its website. In addition, according to the complaint, the defendants plan to expand their operations to reach outside of Florida, including by selling franchise rights to restaurateurs in New Jersey. The Turnpike Authority sent a cease and desist letter to the franchisor in April, prompting the company to apply for a service mark for its logo two weeks later. The Turnpike Authority then brought claims for service mark infringement, unfair competition under Section 43(a) of the Lanham Act, federal service mark dilution, common-law unfair competition and service mark infringement and unfair competition under N.J.S.A. 56:4-1.

Defense attorney JoyAnn Kenny of Marks & Klein contends that Jersey Boardwalk Pizza's logo should not be considered infringing because it is a restaurant chain and could never be confused with a highway agency. Plaintiff, however, counters that its service locations have restaurants ' some of which serve pizza ' and that consumers could become confused by the similarity. In addition, the Turnpike Authority does not want consumers to mistakenly conclude that it is affiliated in any way with the Florida pizza company.

' Janice G. Inman