Month: February 2015

Coffee Franchisee sues franchisor for overpricing

February 28, 2015

On behalf of Garner, Ginsburg & Johnsen, P.A. on Saturday, February 28, 2015.

If you’re a franchisee, then you should be able to expect the franchisor’s pricing to have some rhyme or reason. You undoubtedly expect there to be some sensible formula, and you certainly don’t expect the franchisor’s mark-up on goods to be so unreasonably high that buying them puts you out of business.

That is the claim against a coffee company in Denver. Three former franchisees have sued Dazbog Coffee Co., claiming the franchisor unfairly profited through “systematic and fraudulent overcharging” of franchisees. The lawsuit went so far as to accuse the franchisor of civil theft and racketeering.

One of the franchisees — JavaGen LLC — presented its case to an arbitrator, who found that the claims of civil theft, racketeering and fraud couldn’t be substantiated, but that an implied covenant of fair dealing and good faith had been breached by the franchisor.

According to the arbitrator, Dazbog’s unreasonable, arbitrary and random pricing of goods sold to franchisees “significantly contributed to the numerous failures” of the businesses. It was noted that franchisees could have purchased goods directly from suppliers at much lower prices.

To illustrate the randomness of pricing, the arbitrator noted Dazbog’s sale of tea filters, marked up 41 percent, and cold cups, marked up 68 percent.

While no damages were awarded to either party, the franchise agreement was declared null and void; the franchisee was allowed to keep the leased premises; and the franchisor was told to buy back its branded property at the location.

After the arbitrator’s decision, the other two franchisees reached settlements with Dazbog.

However, a fourth franchisee has brought a similar suit against the company.

For more on combating fraud, misrepresentation and breach of agreements in franchising, please see Garner, Ginsburg & Johnsen’s breach of contract overview. If you want to reach out to our team of expert franchise lawyers, contact us today!

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Tales from the Land of Legal Absurdity: Trademarks Run Amok

February 9, 2015

It seems like every day we come across some new absurd trademark dispute. Today, Red Bull, the energy drink maker, has opposed a small Virginia brewery’s right to trademark the name Old Ox Brewery. Why? As Red Bull argues, an ox is really just a castrated bull, so the two marks are similar (I’ll leave the merits of that argument up to the bulls about to be castrated).

And that’s not all. The Motion Picture Association of America (MPAA) forced one of our own local Minnesota craft breweries, 612Brew, to change the name of its “Rated R” rye IPA because clearly, anyone who sees that name would think the MPAA is now brewing beer on the side. Read on for more details.

The first two paragraphs really say it all. Red Bull is opposing Old Ox’s right to the name Old Ox because it believes bulls and oxen (I think that’s the proper plural) are similar. To be fair to Red Bull, Old Ox apparently plans to use Old Ox on non-alcoholic soft drinks, in addition to beer, so the products are at least potentially similar. That said, I do not think Red Bull’s case is particularly strong (e.g., “bull” sounds nothing like “ox”).  While the use of the same animal to advertise similar products having nothing to do with the animal could potentially lead to confusion, National Nonwovens, Inc. v. Consumer Products Ents., Inc., 397 F. Supp. 2d 245, 258 (D. Mass. 2005), this does not seem like a case where confusion is likely.  Regardless of the merits, this seems like a bad idea for Red Bull. It’s a large corporation taking on a small, family-run brewery. Regardless of the merits, it’s likely going to lead to bad press. For example, Old Ox’s president sent Red Bull a letter that has been published online and will likely only bolster Old Ox’s consumer base (also, it’s a really clever letter and a strong marketing tool, referring to the American dream, a family-run business, the “big Red Bully” and the “Red Bulls**t” argument).

In another instance of a trademark dispute, the MPAA got 612Brew to stop using the “Rated R” name for its rye IPA. While 612Brew argued that the products or services offered by each were entirely different, the MPAA would not back down, so 612Brew, in a clever branding decision, changed the beer’s name to “Unrated.”

Even when you think your product’s name is safe from trademark disputes, that is not always the case.  An exhaustive search in these cases may not have triggered doubt in anyone’s mind, but the owners of trademark rights may have other ideas about how far their rights extend.

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