The Role of the Internet and Other Media in Attacks Against Franchisors

A relevant and timely issue raised at the ABA Forum relates to the role of the internet and "new media" in attacks on franchise systems, and the threat posed by the use of websites, blogs, chat rooms, social networking sites, and virtual worlds. The following paragraphs highlight some of the unique issues raised related to this type of "new media," as it relates to franchisors and franchise systems.

Domain Names. Some franchisors have run into trouble incorporating their registered trademark into a domain name, which can severely limit the impact and traffic to the franchisor's website. Registration of a domain name that incorporates a trademark used by someone else is not a per se violation of trademark law, as use of a domain name merely as an informational part of the internet address does not constitute trademark infringement. The domain name holder may keep the domain name so long as it is not registered in bad faith, or the website is not confusingly similar with the trademark. Thus, franchisors should work quickly to obtain the domain names applicable to their franchise system, and may want to consider this issue prior to registration of its trademark. The Anticybersquatting Consumer Protection Act otherwise may provide a cause of action if the franchisor can establish that the registrant has a "bad faith" intent to profit from a trademark.

Franchisee Websites. Unless otherwise prohibited by its franchise agreement, franchisees that are authorized to use the franchisor's trademark may establish related webpages with domain names that include the franchisor's trademark as part of the domain name. The franchisee may then use this page to promote its franchised business. However, several important issues may arise from this situation. Most importantly, absent separate agreement within the franchise agreement or otherwise, the franchisee will continue to own the rights to the domain name when it leaves the system. The franchisee may then use this site to complain about the franchisor, or direct business away from the franchisor. Additionally, the franchisee's web site may appear in internet searches, and draw traffic away from the franchisor's web site or other franchisee's web sites, who may feel as if the web site is encroaching in its territory. Franchisors should ensure that its franchise agreement addresses this issue.

Gripe Sites. Gripe sites are websites established specifically to complain or criticize about an entity or business, and are usually registered by incorporating the name or trademark of the business along with some type of negative word. Generally, courts allow such sites to operate as free speech under the First Amendment. However, franchisors may be able to obtain injunctions against such websites if the website engages in some type commercial activity, such as the sale of products.

Protecting Confidential Information. The internet makes it more difficult to protect trade secrets from dissemination to the public. Generally, franchisors are less able to find remedies to protect trade secrets that are revealed online, than trade secrets revealed by other means. This is due to the fact that once information becomes "public knowledge," under trade secret law, the information is no longer viewed as protected. As applicable to the internet, if a piece of information is posted once, the repeated posting or passing along of this information electronically is no longer actionable. However, in recent cases, courts have begun to take the view that if a trade secret owner moves quickly and takes reasonable measures to protect the trade secret, the owner may be able to restore trade secret status to information already disseminated on the internet. Thus, franchisors should regularly search the internet for information, and react quickly if it discovers that information that can be classified as a trade secret has been leaked on the internet.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.