January 29, 2010
Moringiello on virtual worlds
In the mail today, a hard copy of Juliet Moringiello's article What Virtual Worlds Can Do for Property Law, out in the January issue of the Florida Law Review, 62 Fla. L. Rev. 159 (2010). Here's the abstract:
For those without a law library handy, an earlier version of the paper is here.
Do you know the Muffin Man?
Suppose you had a secret recipe that had made your company the dominant firm in your field for more than 125 years. And suppose there were only ten people on earth who knew the secret recipe, all of whom learned it from you and work for you. And suppose that there were other giant firms out there that would like nothing better than to knock you off your perch. And suppose one of them had just hired one of those ten.
That appears to be the situationthat Bimbo Bakeries USA, parent of Thomas' English Muffins, is dealing with. You'd think that the company would have locked up those ten employees with good, solid noncompete contracts, but apparently it didn't. So now it's trying to prevent a former executive who knows the secret of how you get Thomas's famous "nooks and crannies" [left] from jumping ship to Hostess Brands, a major competitor of Bimbo. The trade secret law, according to the report from Law.com, looks chancy.
A Whopper of a Franchise Dispute
Is it possible for food to be too cheap? For example, Burger King has a “value menu,” which includes a double cheeseburger for 99 cents. Even if economies of scale purports to explain how Burger King can still profit while selling its products at a lower price than other, smaller food establishments, 99 cents seems too cheap to me for a double cheese burger. The price does not turn me on; rather, it turns me off. I just can’t believe that a quality, tasty meal can be made at such a low production cost. I assume the worst about all of its ingredients.
Well, based on an ongoing dispute between Burger King and its franchisees, the franchisees also are not thrilled about the price of the double cheeseburger. Maybe Burger King is able to turn a profit at this price point, but the franchisees claim that they are not. According to a recent WSJ article, Burger King insists that “its two beef-patty sandwich” be sold for no more than $1 on its “Value Menu.” The franchisees claim that they are losing money on the sales, and they have sued. The issue comes down to the terms of the boilerplate franchise contracts, and whether those contracts allow Burger King to dictate prices. Here’s a taste from he WSJ:
Most franchisees are following orders for now, but the National Franchisee Association for Burger King, which represents restaurant operators across the U.S., filed a lawsuit last fall in U.S. District Court in Florida, asserting that the company's franchise agreements don't allow it to dictate prices.
Burger King, a unit of Burger King Holdings Inc., Miami, says it sees the value promotion as key to competing effectively in the current consumer environment. Franchisees who ignore its pricing instructions "may be declared in default of their franchise agreement," the company says.
The court has yet to rule on Burger King's request to dismiss the case.
A ruling that's favorable to Burger King could embolden other franchisers to mandate prices. Many franchisees have long regarded their power to set prices as testament to their independence.
It used to be that franchisers weren't allowed to impose maximum prices, says Francine Lafontaine, who teaches the economics of franchising at the University of Michigan's Stephen M. Ross School of Business. But a 1997 Supreme Court case involving a Chicago service station dealer and his gasoline wholesaler opened the door for the practice.
Still, many have chosen not to do it, and left in place boilerplate franchising agreements that don't include pricing requirements, says Ms. Lafontaine.
Burger King's franchisees say they usually get the chance to sign off on price changes, and that they've twice rejected a $1 double cheeseburger. Burger King confirms that it previously didn't dictate prices on individual items, though it did require a $1 maximum price on Value Menu items.
The company won a separate case in 2008 requiring franchisees to offer the Value Menu, which is core to its efforts to attract price-conscious consumers.
A company might choose to set prices if it thinks the stores are charging so much that its royalties—and its reputation—are being diminished. But most companies don't like to rile their franchisees, experts say.
Disclaimer coming soon to a Burger King coupon near you: “valid only at participating restaurants”?
[Meredith R. Miller]
Don't try to navigate § 2-207 without it
In the mail today, the brand-new 6th edition of the Uniform Commercial Codehornbook by Jim White and Bob Summers. It's the first update since 2000 of the classic text that has been helping law students work through the maze of UCC 2-207 for 37 years. The new edition cuts down on the citations and increases the examples, as well as dealing with the latest changes to Articles 1 and 9.
January 28, 2010
Breach of Contract Costs Kid a Chance to Be a Contender
According to this story in the Los Angeles Times (and about a zillion other websites), Michael Lynche has been cut from the top 24 contestants of this year's version of American Idol. The ground for his dismissal is breach of contract. The breach allegedly occurred when Lynche's soon-to-be-estranged father confirmed rumors that his son had made the semi-final round. This a breach of the contestants' agreement that they will not divulge their fates on the show.
"Aww, come on!" I hear you type into your favorite blog, "Michael Lynche is awesome!!!" That may well be. I wouldn't know, as I don't watch the show. But one aspect of the report strikes me as very interesting. According to this report, the non-disclosure agreement binds not only the contestants, but also their families. Now how does the network manage that? I mean, if I ever did anything of which my family could be proud, what could I do to prevent my mother from reporting on the nachas? "So, you said he was a nichtgutkeit," I can hear her crow, "But now whose son is idle -- eh? Eh?"
January 26, 2010
Weekly Top Ten from the Social Science Research Network
January 25, 2010
Gilbert Arenas' Contract in Doubt
A New York Times story published last week provides all sorts of interesting details about the negotiations of basketball star Gilbert Arenas' contract with the Washington Wizards. Arenas has been in the news a lot lately. He brought some guns into the arena where the Wizards play and the guns allegedly figured in an argument he had with a teammate in the team locker room. Arenas was charged with, and plead guilty to, the felony of carrying an unlicensed handgun. The league has suspended him indefinitely.
The Times reports that Arenas represented himself in the negotiation of the contract. Maybe that's why his nickname is "Agent Zero." In order to avoid insulting him with a low-ball offer, the team offered him a very generous contract, with the option to take a bit less so that the Wizards could still retain some other top players. The result was a six year, $111 million deal.
The team still owes Arenas $80.2 million on the contract for the next four NBA seasons, but the Times suggests that the Wizards are seeking to avoid any further obligations by invoking the contract's morals clause, which is standard on all NBA contracts. The standard clause requires players to conform their personal conduct to standards of good citizenship, good character and good sportsmanship. By good character, the league means that players must not engage in acts of moral turpitude, whether criminal or non-criminal in nature.
This is a shockingly elastic standard that I would argue could be invoked at random. For example, last season, LeBron James refused to shake hands with opposing players after his team lost a playoff series. Many commentators viewed this conduct as evidence of poor sportsmanship, but there was no invocation of and no talk of invocation of the morals clause. Nor was there any such talk with respect to Kobe Bryant's morals clause although he allegedly admitted to shocking marital infidelities. Now, the reasons why the teams and the league did not invoke the morals clause in those cases are obvious, and I am not suggesting that the clauses should have been invoked. I am simply wondering about the boundaries of the teams' and the league's discretion in invoking the clause and whether that discretion does not render the clause void for vagueness.