News Briefs
Highlights of the latest franchising news from around the country.
Selected Pitfalls to Avoid in the Sale of Refranchised Units
The sale of company units to franchisees ("refranchising") differs from a traditional asset sale because the transaction contemplates a continuous business relationship between the parties. The basic terms of this relationship should be outlined in a letter of intent and will be contained in the provisions of the various transaction documents, including the Asset Sale Agreement (ASA), related transfer documents, such as deeds, leases, subleases, assignments, bills of sale, etc., one or more franchise agreements and, if the obligation to develop additional units is part of the transaction, a development agreement. This article continues the discussion of refranchising in last month's issue by reviewing some of the issues that the parties should consider carefully as they document their on-going relationship post closing.
Proposed New Accounting Rules Rile Franchisors, Franchisees
<i>In the wake of accounting scandals involving Enron, WorldCom, and other companies, the Financial Accounting Standards Board (FASB) is upgrading many rules to force public companies to provide more information about their finances. One of the areas it is addressing relates to how the primary company's financial obligations toward "variable interest entities" are shown on its balance sheet. These rules are aimed primarily at companies that have controlling interests in other companies and, as was the case with Enron, potentially could use those companies to hide their own financial obligations.</i>
Court Watch
Highlights of the latest franchising cases from around the country.
Livin' the Singles Life
Slow to start, authorized Internet downloads of individual sound recordings now exceed one million per week. For recording artists, this may mean a return to the heyday of singles sales experienced in the '50s, '60s and the disco era of the '70s, when singles were created to stand and sell on their own, with little or no relation to other tracks contained on an artist's album. A single in that era routinely consisted of a record with an A and B side, the sale of which rarely produced anything more for an artist than promotion for the artist's live performances. However, with increases in royalty rates and CD retail prices during the '80s and '90s, successful major label artists were able to negotiate provisions in their recording agreements allowing for greater advances and royalties from the production and sale of albums in CD form. Over the past few years, major labels, in large part, have discontinued the release of commercial singles in an effort to eliminate the cannibalization of higher-profit margin CD album sales. As a result, recording artists and their representatives are carefully watching the consumer change from purchasing albums in pre-recorded CD form to purchasing individual tracks from the Internet. Undoubtedly, a return to living the singles life could have severe financial ramifications for recording artists who have become accustomed to living the CD album life.
Bit Parts
Recent developments in entertainment law.
Decision of Note: <B>Song Sampling is Found <i>De Minimis</i></B>
The U.S. Court of Appeals for the Ninth Circuit decided that placing a sampling loop of a six-second, three-note segment from a musical composition into a new sound recording wasn't copyright infringement because the use was <i>de minimis</i>. <i>Newton v. Diamond</i>.
Attorney Fees Update
Depending on the circumstances and the law, parties on either side of an entertainment suit may ask a court for an award of attorney fees. Following are court rulings from recent months that deal with this and related concerns. In future issues, Entertainment Law & Finance will report on such relevant rulings in Attorney-Fee Updates.
