Legal Problems for Franchisors in Social Media

Social media content moves swiftly and sometimes even the best marketing teams make mistakes. Those mistakes can come back to bite a franchisor, hurting its reputation and even causing legal issues.

Examples of Social Media Crises:

In October 2016, KitchenAid USA’s tweet feed included a tweet responding to one of the US Presidential debates. The tweet contained rude remarks about President Obama and his grandmother. It turns out that the post originated from an employee who mistakenly posted to the brand handle instead of his personal account. While the head of branding removed the tweet and apologized publicly within 15 minutes, some consumers responded by saying they would be switching to other brands’ appliances.

In 2013, DKNY dealt with a potential copyright claim when one of its retail stores in Bangkok used a famous photographer’s artwork in its window without permission, despite the photographer having explicitly turned down a licensing deal. The photographer took to Facebook to complain, and DKNY’s central office was left apologizing on Facebook. In the end the brand donated twenty-five thousand dollars to a charity in the photographer’s name.

In 2011, Pizza Hut Southern California’s Facebook page caused a public relations nightmare for the brand. The franchisee used Facebook Questions to poll consumers about its food. One consumer posted a profanity-laced response because the franchisee had failed to check the box providing administrative approval for consumer posts. Customers of the franchisee posted that they would take their business elsewhere because they preferred a family-friendly atmosphere.

Factors for the Franchise to Consider

When putting together its franchisee agreements, franchisors should consider proactively that the worst could happen in social media and protect the brand contractually and with appropriate policies and guidelines for franchisees. A starting place is the franchisor creating its own social media policies for its corporate employees. Yet, the franchisor should not mandate activity of the franchisees’ employees lest it take on culpability for their actions. The franchisor can, however, create guidelines to offer its franchisees as suggested policies, and the franchisor can protect itself in its contract with the franchisee. The following are some top of mind considerations for franchisors when they consider how they will handle social media and their franchisees.

Who will own the social media?

The franchisor’s lifeblood is its trademark. Accordingly, all franchisee social media that incorporates the trademark should be done with a license from the franchisor. Ownership of the content of the social media, however, is up for grabs. Consider whether the franchisor wants to own that content or whether it wants a path for distance from the rogue franchisee.

• Best Practice: Establish a trademark license that covers all social media channels. Outline contractually what rights the franchisee has to create content and who will own the content. Even if the franchisor will not own the content, provide strong discretionary takedown order rights and even termination of franchise rights to protect against the franchisee whose content is problematic and contrary to brand values.

Who will proliferate the social media content?

Another way to protect the franchise is to centralize all social media channels through the corporate office. One option for control is to prohibit franchisees from having social media channels that bear the franchisor trademark. Instead, all social media would come from the corporate voice. This strategy certainly could limit risk for a franchisor. On the other hand, some franchises may feel that franchisee channels could be good for marketing. Perhaps there are regional differences that require different voices.

• Best Practice: Consider carefully whether a centralized social media model is appropriate. Address in the franchise agreement what rights the franchisee has to create its own social media channels and content. Consider not only whether to allow social media channels but also whether franchisees can run their own social media prize promotions, coupons, and loyalty programs. If franchisees are allowed to do this kind of marketing, what kind of warranties and indemnities exist in the franchise agreement to protect against legal problems with marketing efforts.

How can the franchisor protect confidential information?

The franchise agreement should provide an extensive definition of confidential information. It should also provide details of how the franchisor can act to protect its confidential information. Nonetheless, while the franchisor may act to terminate a franchise pursuant to these clauses, it may be powerless to fire an individual franchise’s employee.

• Best Practice: Consider the protection of confidential information when deciding whether to give franchisees the right to promote the brand in social media. If a franchisor decides to permit franchisee-owned social media accounts, then provide suggested guidelines for the franchisee to implement and training to assist in directing employees.

How should the franchisor guide franchisees on social media content?

Policies are insufficient. The Federal Trade Commission has stated in case after case that brands are responsible for the actions of their agencies and influencers. They must disclose material connections to influencers and ensure that consumers understand which digital content is advertising. (Click here for a discussion of the most recent case against Lord & Taylor’s influencer and native advertising campaign). To comply with the FTC’s Endorsement & Testimonial Guidelines and Native Advertising Enforcement Policy, franchisors should remember the FTC’s mnemonic “M.M.M.” Mandate a disclosure policy that complies with the law. Make sure people know the rules. Monitor what they are doing on the franchisor’s behalf. In addition, it is essential to have practices dictate policy and not the other way around. A policy crafted by an attorney in isolation from company marketing efforts will not serve a franchise.

• Best Practice: Franchisors should have regular internal training for franchisees on the FTC guidelines, enforcement activity, and risk mitigation. In addition, brands should create clear guidelines for social influencers about their expectations for disclosures and have a monitoring program with teeth, similar to the ones laid out in the FTC’s Machinima and Lord & Taylor cases. The best protection for a brand is to show a regulator that it is training its influencers, enforcing disclosure requirements, and parting ways with influencers who are not onboard. Legal counsel should be actively involved throughout all initiatives. In addition, bi-annual audits are highly recommended because social media marketing strategies shift frequently.

Is either the franchisor or its franchisees outsourcing content creation?

Outsourcing could be an invitation for disaster. The marketplace has a low barrier to entry for social media vendors, and consequently, companies need to understand their vendors’ capabilities and weaknesses before hiring them. Many franchises will consider a full test drive of products before hiring, but what of the other elephant in the room, legal liability? Social media vendors, as a whole, do not accept legal liability for their work. They are typically unwilling to warrant the legality of content or indemnify against enforcement actions. What happens if data security is breached? Who is clearing the sweepstakes that the vendor is helping brands post to Facebook? And who is bearing the risk of liability? Digging even deeper, most brands overlook due diligence on their vendors’ patents to determine their validity. Imagine the business interruption after hiring a vendor, becoming reliant on them, and then losing them to a patent infringement lawsuit.

• Best Practice: Before hiring a social media vendor, look carefully at the contract and assess not only potential legal liability but also how the vendor will work with the brand to avoid an investigation or crisis from occurring in the first place.

What about angry customers?

One of the trickiest issues for any business is dealing with angry customers or negative reviews. This problem becomes even more complex for franchises. The franchisee may be on the front lines, but how they manage the confrontation, especially in social media, can reflect on the brand. The franchisee’s actions may also implicate customer privacy.

• Best Practice: Encourage polite interaction and taking confrontation off line as promptly as possible. Franchisors should train offer training in disengagement as well as policy guidelines. In addition, franchisors should provide a communications liaison who is available at all times to assist in crisis management. Finally, ensure the franchisor’s data breach programs are up-to-date and franchisees are obligated contractually to report any problems, no matter how small, to corporate general counsel.