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Evidentiary Requirements To Recover Lost Future Royalties
When franchisors enter into long-term franchise agreements, they expect to receive a steady stream of royalties for the duration of the agreement. In some cases, that can mean 20 years of royalty revenue from one franchise location. However, if the relationship sours and the agreement is terminated prior to expiration, the franchisor faces the prospect of losing the anticipated stream of royalties for the remaining term of the agreement. More and more often, franchisors are turning to the courts to attempt to recover those lost future royalties.
Most courts agree that if a franchisee terminates the franchise agreement, a franchisor is permitted to recover lost future royalties. See, Healy v. Carlson Travel Network Assocs., 227 F.Supp.2d 1080, 1094 (D. Minn. 2002); Vino 100, LLC v. Smoke on the Water, LLC, 864 F.Supp.2d 269, 286 (E.D. Pa. 2012). However, if the franchisor terminates the franchise agreement due to misconduct or a breach by the franchisee, the issue remains unsettled. See, Postal Instant Press, Inc. v. Sealy, 43 Cal. App. 4th 1704 (1996) (court, applying a proximate cause analysis, refused to allow franchisor to recover lost future royalties when it terminated the agreement); but see, American Speedy Printing Centers, Inc. v. AM Marketing, Inc., 69 F.Appx. 692 (6th Cir. 2003) (court, following traditional contract principles, allowed franchisor to recover lost future royalties even though it terminated the agreement).
Recovery of future royalties by a franchisor is a two-step process: 1) establishing the legal right to recover future royalties; and 2) submitting sufficient evidence to establish the amount of future royalties to a reasonable degree of certainty. Although several articles have looked at step one, less consideration has been given to step two. This article focuses on step two and some of the obstacles a franchisor may face in submitting adequate evidence to support an award of future royalties. This specific issue was addressed in a recent decision by U.S. District Court for the District of Minnesota, and it illustrates the potential hurdles a franchisor may face ' even if the matter is unopposed by the franchisee. See, Novus Franchise, Inc. v. AZ Glassworks, LLC, Civil No. 12-1771 (MJD/TNL), 2013 WL 1110838 (D. Minn., March 18, 2013).
The Article 8 Opt In
The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.
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With each successive large-scale cyber attack, it is slowly becoming clear that ransomware attacks are targeting the critical infrastructure of the most powerful country on the planet. Understanding the strategy, and tactics of our opponents, as well as the strategy and the tactics we implement as a response are vital to victory.