Sunday, May 13, 2007

Franchising news - Quiznos

Thanks to Wiggins and Dana's Franchise Law Blog and Blue MauMau for the heads up on these news items.

Quiznos lost a motion for a preliminary injunction brought by a franchisee group whose members it had terminated. Wiggins gave a link to this article on Fast Casual.

Quiznos terminated the Toasted Subs members' franchise agreements in early December, saying the group uses hostile efforts to damage the company's reputation. The termination letter was sent after the Toasted Subs organization posted a suicide letter on its Web site from Baber Vhupinder, a longtime franchisee and litigant against Quiznos.
Blue MauMau has a link in the article TSFA Files for Injunction to Quash Quiznos Termination Notices to the Quiznos' termination notices that does not work but the link to the franchisees' Brief does work. Click here to read the Brief in PDf format. Quiznos used the generic "detrimental to the goodwill of the Mark" ground for termination.

Franchisors retain the ability to terminate franchisees for anything the franchisor thinks hurts the goodwill associated with the franchisor's trademarks. I think of these clauses as being akin to the morality clauses that once were part and parcel of Hollywood actor's contracts. Behave well in public or get fired. Here, Quiznos uses this clause for offensive purposes. The franchisees made public their criticisms of Quiznos and I would say that they were damaging to the Quiznos trademark. Deservedly so, too, if true, as reported at Blue MauMau:
In a Rocky Mountain News article this morning, Franchisees terminated by Quiznos seek injunction to stay in system, it states that a slew of lawsuits by franchisees and former franchisees, including Baber, allege that the company promises profits that are out of line with reality; that it forces franchisees to pay approved vendors too much for suppliers; that it allows stores to be built close together and; cannibalize each other; and that it blankets markets with coupons that further lighten the franchisees’ bottom line.”
I wonder about Quiznos' strategy here. I think a public lawsuit is the last place I want to air problems with my clients' franchise structure. Even the appearance of problems can kill a business.