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Lawsuit Regarding Strip Club Ad Highlights Importance Of Franchise Brand Management

A recent lawsuit filed by sandwich franchisor Capriotti’s underlines the importance of brand management for franchise companies. The franchisor sued its Las Vegas-based franchisee, seeking to terminate the franchise agreement and an injunction to prevent the franchisee from continuing to operate under the Capriotti’s name.

The franchisee is accused of engaging in an advertising campaign featuring the tagline "a match made in Vegas heaven: boobs and Bobbies." The allegation by Capriotti’s is that the franchise owner collaborated with the Las Vegas strip club Crazy Horse III to offer the Capriotti’s trademark turkey, stuffing, and cranberry sauce sandwich, the "Bobbie," during happy hour at the strip club. The problem with the attention-grabbing campaign, Capriotti’s claims, is that the franchisee never received permission from the company to run the advertisement. If the allegation is true, this very well could provide sufficient justification for termination of the franchise agreement.

Every well-drafted franchise agreement will have certain restrictions regarding the franchisee's ability to advertise. The franchisee will ordinarily be permitted to use any advertisements created by the franchisor's marketing department without obtaining advance permission. If the franchisee creates its own advertisements, however, the franchisor's written permission must first be obtained. Many franchise agreements will have a specific procedure for obtaining this written consent, including a time limitation for the franchise company to grant or deny permission to use the ad. Presumably, this is the provision that the Capriotti's franchisee has been accused of violating by failing to obtain the required approval.

The action by Capriotti's is understandable from a brand management point of view. The purpose of franchise agreement provisions that place limitations on a franchisee's ability to advertise is to protect brand integrity. If a franchisee is given carte blanche to use the franchise company's trademarks in any way that the franchisee sees fit, the overall brand image can be harmed if the franchisee is injudicious in the marks' use. In the Capriotti's example, the "boobs and Bobbies" ad could hurt the brand in the eyes of the public, which may not want to patronize a sandwich shop that associates with a strip club. Which is exactly Capriotti's point, as it contends in the lawsuit that the teaming up of the Capriotti's brand with an adult entertainment business will hurt the family-friendly reputation of the business.

The Capriotti's lawsuit provides important reminders for both franchisees and franchisors. For franchisees, the legal case underscores the absolute importance of obtaining franchisor permission and consent before using any marketing material that has not been created by the company's marketing department. For franchisors, the lawsuit is a reminder that it is critical for the franchise agreement to have appropriate controls for franchisee-created advertising, as well as strong remedies to address a franchisee's violation of those restrictions.

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Armstrong Teasdale lawyers practice extensively in the areas of franchising and distribution, including the development of new franchise systems, preparation of franchise offering circulars, compliance with federal and state requirements, contract negotiation, trials and appeals in all courts, representation in arbitration proceedings, mediation, and assistance in evaluating the impact of these areas on other client operations.

Franchise and distribution lawyers review, analyze and stay current with legislation and regulations promulgated by government authorities. Additionally,...