• Protectable Interests for Franchisors – The case of the not so Perfect 10

     
    Today I was asked by my colleague Lita Miti-Qamata to present on a case in her monthly discussions that had a number of handy lessons for stakeholders in the franchise industry, including lawyers.

     

    It is a Pretoria High Court decision involving the cancellation of the Perfect 10franchise in a prominent shopping centre in Menlyn, Pretoria and the scope of the protectable interest of the franchisor after termination. In lay speak, whether a franchisor can prevent an ex franchisee from competing at the same location under a different name and operating system?
     
     
    ENJOY BEAUTY (PTY) LTD V PETROVIA AND SMIT BEAUTY SALON AND ORS Case No: 67970-1/2016

     

    Background

     

    The applicant/franchisor provides health and beauty services operated through a franchise network. One of the brands is symbolised by the trade mark PERFECT 10 and its associated look and feel. The franchise operation sold the SKINDERM range of products and developed the “HeadStart salon management system”. The franchised IP is owned by The Imbalie Group, who owns the applicant.
     
     
    Perfect 10 Branding & SkinDerm Product:

     

     

    The respondent is a franchisee who cancelled the franchise contract on 15 August 2016. The primary reasons for its dissatisfaction were the applicant’s insistence on its use of the HeadStart salon system and sale of SkinDerm products only. It claimed that the former was inferior to its current system and the latter would be commercial suicide (as it sold other products).

     

    Applicant’s claim for trade mark infringement

     

    This was rejected by the courts as being premature. The basis, simply put, is that when the application was launched the applicant claimed both for the store to be “handed over” signage intact, and in the alternative, for the signage to be removed etc. It was only upon election of one of the alternatives (or judgment) that the respondent would know where it stood. Hence the position that the respondent found itself in, was of the applicant’s own making and the claim for infringement premature, according to the judge.
     

     

    The judge unfortunately incorrectly applies the law here (para 17-18). He states that because the respondent had no intention of infringing the trade marks (because of the franchisor’s confusing requests), there is no trade mark infringement. The correct reasoning that the judge should have used in coming to that conclusion, is that the franchisee’s continued use of the trade marks was authorised (because of the franchisor’s confusing requests) i.e. the use was not unauthorised as required by the Act. “Intention” has no part to play when considering trade mark infringement. It is questionable though whether the “confusion prayers” of the applicant, amount to “consent” but that was not canvassed..

     

    The Restraint of Trade

     

    There are two legs to this enquiry:

     

    • Whether the letter of suretyship bound the third respondent (the application against the second respondent having been withdrawn) to the restraint of trade; and
    • The scope of the restraint of trade.

     

    Concerning the suretyship, the court gave short shrift to the issue stating that it had been signed prior to the relevant franchise agreement and not simultaneously with it, as the wording required. In addition, that the intention of the suretyship was to provide ongoing indemnification relating to monetary obligations and not to hold the franchisee to the restraint.

     

    The judge is correct here and the lesson is to pay particular attention when drafting and agreeing documents. The word “simultaneously” means exactly that, and much like the formalities required for a confirmatory affidavit, it makes no sense to sign a separate suretyship document before the main agreement is signed. The scope of the suretyship should also spell out the obligations they apply to.

     

    The analysis of the second leg was more complex. Under RSA law the position on restraints is set out in the well known Magna Alloys case which is summarised in para 27.

     

    The judge establishes that that the restraint was reasonable both in time frame (1 year) and geographical extent (5kms).  The question was therefore, what exactly could be restrained. What was the protectable interest?

     

    Applied to this matter, the judge held that it was the “operations manual and operating system, their own specific product, branding and logos and everything that constituted the applicant’s trade marks.” (para 34) Absent of this, in this case, the applicant had no protectable interest. The effect of this is that respondents could set up a competing business within one year, within 5kms without falling foul of the restraint.

     

    The applicant’s request for interim relief was dismissed in its entirety, with costs.
     
    The case will have been a blow for Perfect 10 in that it is foreseeable that the ex franchisee could simply remove the signage, stop using the product, branding and logos and continue to operate from the same store. It would mean too that it could take advantage of the goodwill in the location – the so-called “habit effect” of consumers knowing where to get their “nails done” simply by location of the store. 
     
    Yet, the judge is correct, the agreement did not include “location” as part of the goodwill, the ex franchisee did not only sell franchised products and use franchised systems (it had its own) and the franchisee, it appears, was also the lessee of the space. In these circumstances, without additional evidence that showed the location to be part of the protectable interest or at least any interest beyond those noted by the judge, that goodwill belonged to the franchisee.  
     
    This does not mean that goodwill in a location and restraints cannot be enforced in agreements. The lessons are to pay attention to them in the drafting and to secure as much clarity in the wording as possible, when entering into the agreement in the first place. This would also apply to non disclosure agreements, co-existence agreements and ordinary licenses. In addition, from a franchisor’s perspective, control the lease.
     


      

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  • Protectable Interests for Franchisors – The case of the not so Perfect 10

     
    Today I was asked by my colleague Lita Miti-Qamata to present on a case in her monthly discussions that had a number of handy lessons for stakeholders in the franchise industry, including lawyers.

     

    It is a Pretoria High Court decision involving the cancellation of the Perfect 10franchise in a prominent shopping centre in Menlyn, Pretoria and the scope of the protectable interest of the franchisor after termination. In lay speak, whether a franchisor can prevent an ex franchisee from competing at the same location under a different name and operating system?
     
     

    ENJOY BEAUTY (PTY) LTD V PETROVIA AND SMIT BEAUTY SALON AND ORS Case No: 67970-1/2016

     
     

     

    Background

     

    The applicant/franchisor provides health and beauty services operated through a franchise network. One of the brands is symbolised by the trade mark PERFECT 10 and its associated look and feel. The franchise operation sold the SKINDERM range of products and developed the “HeadStart salon management system”. The franchised IP is owned by The Imbalie Group, who owns the applicant.
     
     
    Perfect 10 Branding & SkinDerm Product:

     

     

    The respondent is a franchisee who cancelled the franchise contract on 15 August 2016. The primary reasons for its dissatisfaction were the applicant’s insistence on its use of the HeadStart salon system and sale of SkinDerm products only. It claimed that the former was inferior to its current system and the latter would be commercial suicide (as it sold other products).

     

    Applicant’s claim for trade mark infringement

     

    This was rejected by the courts as being premature. The basis, simply put, is that when the application was launched the applicant claimed both for the store to be “handed over” signage intact, and in the alternative, for the signage to be removed etc. It was only upon election of one of the alternatives (or judgment) that the respondent would know where it stood. Hence the position that the respondent found itself in, was of the applicant’s own making and the claim for infringement premature, according to the judge.
     

     

    The judge unfortunately incorrectly applies the law here (para 17-18). He states that because the respondent had no intention of infringing the trade marks (because of the franchisor’s confusing requests), there is no trade mark infringement. The correct reasoning that the judge should have used in coming to that conclusion, is that the franchisee’s continued use of the trade marks was authorised (because of the franchisor’s confusing requests) i.e. the use was not unauthorised as required by the Act. “Intention” has no part to play when considering trade mark infringement. It is questionable though whether the confusion prayers of the applicant, amount to “consent” but that was not canvassed..

     

    The Restraint of Trade

     

    There are two legs to this enquiry:

     

    • Whether the letter of suretyship bound the third respondent (the application against the second respondent having been withdrawn) to the restraint of trade; and
    • The scope of the restraint of trade.

     

    Concerning the suretyship, the court have short shrift to the issue stating that it had been signed prior to the relevant franchise agreement and not simultaneously with it, as the wording required. In addition, that the intention of the suretyship was to provide ongoing indemnification relating to monetary obligations and not to hold them to the restraint.

     

    The judge is correct here and the lesson is to pay particular attention when drafting and agreeing documents. The word “simultaneously” means exactly that, and much like the formalities required for a confirmatory affidavit, it makes no sense to sign a separate suretyship document before the main agreement is signed. The scope of the suretyship should also spell out the obligations they apply to.

     

    The analysis of the second leg was more complex. Under RSA law the position on restraints is set out in the well known Magna Alloys case which is summarised in para 27.

     

    The judge establishes that that the restraint was reasonable both in time frame (1 year) and geographical extent (5kms).  The question was therefore, what exactly could be restrained. What was the protectable interest?

     

    Applied to this matter, the judge held that it was the “operations manual and operating system, their own specific product, branding and logos and everything that constituted the applicant’s trade marks.” (para 34) Absent of this, in this case, the applicant had no protectable interest. The effect of this is that respondents could set up a competing business within one year, within 5kms without falling foul of the restraint.

     

    The applicant’s request for interim relief was dismissed in its entirety, with costs.
     
    The case will have been a blow for Perfect 10 in that it is foreseeable that the ex franchisee could simply remove the signage, stop using the product, branding and logos and continue to operate from the same store. It would mean too that it could take advantage of the goodwill in the location – the so-called “habit effect” of consumers knowing where to get their “nails done” simply by location of the store. 
     
    Yet, the judge has got it right here, the agreement did not include “location” as part of the goodwill, the ex franchisee did not only sell franchised products and use franchised systems (it had its own) and the franchisee, it appears, was also the lessee of the space. In these circumstances, without additional evidence that showed the location to be part of the protectable interest or at least any interest beyond those noted by the judge, that goodwill belonged to the franchisee.  
     
    This does not mean that goodwill in a location and restraints cannot be enforced in agreements. The lessons are to pay attention to them in the drafting and to secure as much clarity in the wording as possible, when entering into the agreement in the first place. This would also apply to non disclosure agreements, co-existence agreements and ordinary licenses. In addition, from a franchisor’s perspective, control the lease.
     


     

     

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  • Guest Post: Secret Software Sales

    Guest post by Matthew Fagan, Principal at KDP where he handles patent matters.  Much of the post-Helsinn analysis has focused on its impact on pharma where substantial strategic pre-filing activity is the norm. I asked Mr. Fagan to come at the problem from the computer and software perspective.  – DC = = = =  When the Federal Circuit […]

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  • Chinese solar farms make country a global leader in renewables despite world’s deadliest air quality

    The Anhui solar farm is the world’s largest floating farm but its 40 MW capacity is much lower than other large photovoltaic power stations across the world. However, news reports have focused on the fact that the Anhui farm is the latest in a string of renewable energy plant construction projects, which have been ramping up in China. In recent years, that country’s central government has made steps towards building massive solar farms on land, including a 2,550-hectare plant in the Gobi…

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  • Judge Newman’s 90th Birthday

    According to Wikipedia, Judge Pauline Newman of the Federal Circuit will mark a major milestone next Tuesday June 20th, when she turns 90 years old.  I was planning on posting a congratulatory post next Tuesday; but, it occurs to me that there are many people in the patent community who might want to send Judge […]

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  • Patentlyo Bits and Bytes by Anthony McCain

    John Duffy: The Supreme Court Reverses Another Federal Circuit Patent Case Gene Quinn: Industry Reaction To SCOTUS Decision In Sandoz v. Amgen Richard Lloyd: The Oil States IPR Case Could Be One Of Those Rare Instances Where SCOTUS Sides With The CAFC Scott Graham: Lawmakers Plot Next Steps On Patent Reform Joseph Herndon: Credit Acceptance […]

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  • Bob Dylan copied parts of his Nobel speech from Sparknotes?

    Various news outlets have written about alleged plagiarism by Bob Dylan in his
    Nobel acceptance speech. Fox News reported:


    Bob Dylan has been accused of lifting portions of his Nobel Prize lecture from SparkNotes.

    Dylan discussed three books that had the biggest impact on his life including Herman Melville’s “Moby Dick.” He quoted a passage from the novel – the only problem is the passage does not appear in Melville’s book — but it does in SparkNotes.

    SparkNotes is a website that offers students looking for shortcuts on major works of literature among other topics.

    link to FoxNews: http://www.foxnews.com/entertainment/2017/06/14/bob-dylan-accused-plagiarizing-his-nobel-prize-lecture-from-sparknotes.html

    This would not be Dylan’s first brush with plagiarism. In 2012, IPBiz had a post

    Dylan: Wussies and pussies complain about that stuff.

    quoting from CBS News post — Bob Dylan calls plagiarism accusers “wussies”

    link to IPBiz post: http://ipbiz.blogspot.com/2012/09/dylan-wussies-and-pussies-complain.html

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  • BE BY STH(ACTION)

                            目次はこちら

    BE BY STH(ACTION)

    $$ The notification may be by SMS and the user’s "call" may comprise an SMS message rather than a voice call. / この通知はSMSによるものであってもよく、ユーザの“呼”は音声呼ではなくSMSメッセージを含んでいてもよい。(USP7577676): be by

    $$ Propulsion of the rivets along the delivery tube is by pressurised fluid such as compressed air or by linear magnetic acceleration. / 分配チューブに沿ったリベットの推進は、圧縮空気のような圧縮流体、あるいは線形の磁気加速による。(USP6692213)

    $$ One particular way to achieve this is by careful selection of any fixed capacitative structure, and the provision of capacitors of sufficiently small values, or of a range of values, / これを達成するための1つの個別の道は、何れかのキャパシタンス構成の注意深い選択によることであり、充分に小さい値、または値の範囲でのキャパシタの提供による。(USP6681102)

    $$ A preferred route for obtaining the reactant hydrogen fuel gas is by the now well established method of reforming hydrocarbon fuels or their alcohol analogues. / 反応体である水素燃料ガスを得る好ましい方法は、炭化水素燃料またはそのアルコール同族体をリホーミングするという今日では十分に確立されている方法によってである。(USP5436086)

    $$ The third method of searching the QUANTARC Electronic Library is by Sfb classification (FIG. 16). / QUANTARC電子ライブラリの3番目の検索方法は、SfB分類によるものである。(USP5559936)

                            目次はこちら

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  • U.S. v. Sullivan

    With Judge Wallach on the panel in the Federal Circuit’s panel-stacking case, I’m curious if the court will look to other areas of the law, such as courts of military justice, to evaluate the fairness of panel stacking.  In U.S. v. Sullivan, the United States Court of Appeals for the Armed Forces approved of a […]

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  • The Federal Circuit IP Blog Embarks on “The Terrible Twos” and Finds Patent Law Posts More Popular than Procedural Ones

    Author: Tyler B. Latcham* Editor: Elizabeth D. Ferrill 1. Federal Circuit Elaborates on § 101 Analysis Under Step Two of the Alice Test – Section 101 remains a hot topic, specifically as the Federal Circuit finds more claims directed toward computer technology patent-eligible subject matter. This blog summarized BASCOM Global v. AT&T, where the Federal Circuit found claims […]

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