We noted in our first blog that both the business and the law of franchising are rapidly developing. One of our aims in this blog is to assist interested parties in staying abreast of those developments, whether they be attorneys, franchisors, franchisees or others working with them.
Our August 12 blog discussed a significant case for franchisees. Franchisor rights have also been evolving. In a significant victory for franchisors, a federal appeals court has ruled that a franchisor may require the purchase and use of specific equipment by its franchisees. The United States Court of Appeals for the Eighth Circuit, in a case involving Domino’s Pizza (Bores v. Domino’s Pizza, LLC, 530 F.3d 671 ), overruled the trial court and held that a provision in the Domino’s franchise agreement permitted the franchisor to require its franchisees to purchase and install custom-designed integrated computer systems created specially for Domino’s units. The lower court ruling had caused significant concern in the franchise industry, where many franchise agreements require the purchase of specific computer equipment for point-of-sale systems.
The reversal turned on interpretation of the words “any” and “specification.” The franchisee plaintiffs argued that the provision at issue–”We will provide you with specifications for… computer hardware and software…. You may purchase items meeting our specifications from any source.”–had meaning only if the equipment at issue were available for sale from more than one source. The court disagreed. The court held as well that in fact a franchisee could purchase the point-of-sale equipment mandated either new from Domino’s or used from another franchisee.
Franchise practitioners continue to assemble these fresh readings of contract language and statutory references to make certain that their own documents present their clients with the most advantageous interpretation.