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Scott Sandberg - Franchise Attorney - What to do when a franchise relationship falls apart.

Scott Sandberg
This was our first interview on Blog Talk Radio with Franchise Attorney Scott Sandberg

Q. I know that many people don't like to think about the franchise relationship falling apart, but it really is a necessary evil, isn't it?
A. Absolutely. Nobody should enter into a business relationship without an exit strategy.

Q. Seems to make sense to have that "what if" plan, but why do you think so many people turn away from making sure they're covered if things should turn south?
A. First of all, it's counterintuitive to think about the end when you're just beginning. Many Franchisees and Franchisors are so excited about the concept that they put blinders on and go full speed ahead. That entrepreneurial spirit is great to have, but it's a necessary evil to take some precautionary steps to cover yourself if the worst should end up happening.
Second of all, I think people don't take the proper steps because the termination process is more difficult than it should be.

Q. Why is that?
A. Because communications are imprecise.



Q. Can you help clarify the communications process?
A. Yes. Let me talk through some questions that people [Franchisees/ors?] should ask themselves to help manage the default/termination process in the field. These questions can help not only those who are currently in the termination process, but really for anyone in a franchise relationship to prepare themselves.

1. What knowledge do your operations staff have about the process?
2. How do the operations staff communicate with management regarding the units?
3. Do you explain this process to operations staff? If so, how?
4. How do you ensure that your staff understands what to do during the process?
5. What pitfalls/problems have you encountered?

Q. Great, that gives us some good information on preparing for and handling communications in the field during the termination process. Now what about intellectual assets? What happens to that?
A. Good point. Terminating a franchise often results in disputes over the use of intellectual property, including copyrights, trademarks trade dress, and trade secrets. Franchisors and franchisees often dispute whether franchisees may continue operating in the same business and, if so, whether the franchisees can continue using similar logos, décor, and operating methods as the previously franchises business.

Q. Are there steps people can take to protect themselves?
A. Absolutely.
1. Include post-termination covenants in your franchise agreements that protect intellectual property.
2. Can you distinguish your intellectual property from that used by other competitors in your industry? Are there elements of your location, design or decoration, or other elements of the look and feel of your system that are distinctive and that consumers recognize? [If so....then what?]
3. Do you have the capability to readily re-possess intellectual property?
4. Register or otherwise protect elements of your intellectual property
5. There are some difficulties that people have had enforcing intellectual property rights following a termination.


Q. How do most franchise terminations resolve themselves?
A. Ideally, they resolve with the franchisee but sometimes they go to litigation, including emergency proceedings in court.


Click the play button below to listen to the whole interview with Scott Sandberg.