We all recently learned of the bankruptcy of a Vancouver hotel that was operating under a franchise from the Trump International Hotels' network.
According to some media reports, one of the reasons for the collapse was the association between the hotel and the name of the controversial U.S. president.
Indeed, in order to increase their notoriety or attractiveness, some networks find it advantageous to associate themselves, in various ways, to the name or image of a well-known person (most often from the artistic or sports world).
Some even use a person's name themselves as a network brand (think of the Tim Hortons, Jean Coutu and Yves Rocher networks, among many others). The KFC network also makes extensive use of the image of its famous founder (Colonel Sanders), while the McDonald's brand is based on the names of its two original founders.
Other networks instead use a well-known person as a spokesperson. An example is the association, which lasted for several years, between the Québec Corbeil Électroménagers network and actor Yves Corbeil. Some networks also grant one or more franchises to known persons who thus become both franchisees and spokespersons (official or unofficial) of the network.
In the USA, the relationship between a franchise network and the name or image of a public figure has been deemed sufficiently important in franchising that it is the topic of an item (Item 18) requiring mandatory and full disclosure (including with respect to the terms of the agreement with any such public figure) in the disclosure document (known as the "Uniform Franchise Offering Circular" or, more commonly, the "UFOC") which shall be provided by all franchisors to any prospective franchisee.
The unfortunate termination of the Trump International Hotel & Tower in Vancouver, however, illustrates one of the many risks of associating the name or image of a well-known person with the brand of a network.
In fact, despite its obvious benefits in terms of marketing and public relations, establishing a close association between a franchised network and the name or image of a well-known person raises several challenges and risks, including the following :
• It is very difficult to obtain registration of a person's name as a trademark. Indeed, section 12 (1) a. of the Trademarks Act specifically states that a trademark consisting of "a word that is primarily merely the name or the surname of an individual who is living or has died within the preceding thirty years" is not registrable;
• It will be very difficult to prevent a person bearing a name identical to the name of a well-known person from starting or operating under her or his name a business in the same sector of activity as the network;
• Significant problems can arise if the well-known person :
• Wants to withdraw permission for the network to use her or his name or image;
• Becomes involved in a dispute or litigation with the network;
• Significantly alters her or his image;
• Commits acts harmful to its reputation;
• Is the victim of allegations (founded or unfounded) that negatively affect her or his reputation or credibility;
• Gets involved, directly or indirectly, in a business (such as a competitor) or activity (e.g., politics) that damages the network's image and interests;
• Makes statements or takes actions damaging to the image and interests of the network;
• It may be difficult to terminate the relationship between the network and the well-known individual when the relationship is very close (for example, if the well-known individual's name is the name of the network or is an important component of the network) or if the relationship has lasted for a long period of time.
All these issues have been really experienced by networks that have associated with a well-known person, which does not prevent such an association from sometimes representing a great opportunity and a powerful marketing tool.
However, one must think carefully before committing to such a relationship.
Here are a few precautions that can help mitigate some of the risks that can arise from an association between a network and the name or image of a well-known person:
• Signing with that person a clear and complete agreement regarding the duration, the terms and conditions of the agreement, and the rights and obligations of each party;
• Retain, for the purpose of drafting such an agreement, the services of lawyers experienced in dealing with contracts involving the use of the name or image of known persons.
Such contracts are commonly used by enterprises in the media, sports, film and entertainment industries and contain many provisions that a person unfamiliar with this type of agreement would not think of. For example, such a contract often includes a clause dealing with the obligation of the known person to use exclusively the products and services of the network, to the exclusion of the products and services of any competitor.
Among other things, such contracts should stipulate clear termination and suspension clauses which can be very quickly enforced if, for any reason whatsoever, the image or reputation of the network is likely to be tarnished because of its relationship with the known person's name or image;
• Whenever possible, favour short-term over long-term agreements;
• Provide for, and keep up to date, a Plan B in the event of the occurrence of a situation that would require the prompt termination, temporarily or permanently, of the relationship between the network and the image or name of the known person;
• Closely monitor the activities of the known person and communicate regularly with him/her, or her or his agent or manager, to ensure compliance with the terms of the contract and to prevent as soon as possible any situation that could become damaging;
• Monitors reports, interviews, professional and media activities, as well as news and commentary, about the known person, particularly on social media where news and commentary are spread at lightning speed.
Fasken has all the expertise and resources necessary to help you draft agreements that are complete, adequate and protect your rights, while avoiding potential pitfalls.