At the recently held annual program of the American Bar Association’s Forum on Franchising, one of the more intriguing programs was presented by Ric Cohen of Chang Cohen, Sandy Walls of McDonald’s Corporation and David Meretta of Witmer Karp Warner & Ryan. The subject was vicarious liability, and the primary issue discussed was when is a franchisor’s control over a franchisee—required to protect the franchisor’s trademark rights and to create a viable franchise system with the desired level of uniformity or minimum standards—so great that the franchisor risks being held vicariously liable for the actions of its franchisees?1
It is an interesting question, for the franchisor-oriented lawyer constantly finds himself (or herself) in a dilemma. Much like a poker player, to succeed in determining how much control to grant his client within the franchise agreement, the lawyer is essentially drawing to an inside straight. If either the lawyer’s franchise agreement or the client’s conduct demonstrates excessive control, the client may find itself vicariously liable for the acts of its franchisees. But if the franchisor does not exert enough control, it risks losing its trademark rights.
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