Effective use of the Internet: a guide for franchise systems.

Internet Web sites, intranets and extranets can be effective ways to communicate with existing franchisees, prospects and the public in general. However, if a franchise system is not careful, it could lose control over these valuable tools.

Domain Names

The starting point is the domain name, for example "franchise.org" or "davis.ca." The franchisor's ability to maintain an effective Internet presence will depend largely on the domain names the franchisor has registered and which domain names third parties have registered.

Accordingly, the franchise agreement should specifically prohibit or limit each franchisee's ability to register any domain name which incorporates a material part of the franchisor's domain name(s) or trademarks. Franchisors should also consider registering their trademarks and domain names in other countries (in Canada, for example, franchisors should register ".ca" domain names corresponding to their trademarks). This will help franchisors protect their marks in those countries and demonstrate a local presence when they decide to expand their systems.

Web sites--General

Once the franchisor has secured and protected its domain names, it should turn its attention to the system's Web site.

The Web site can be a great tool for marketing a franchise system and its franchisees. Accordingly, many franchisors require their franchisees to contribute to the creation, maintenance and updating of their system's Web sites.

Many franchisors also use a portion of their Web sites to attract potential new franchisees. This too is a great use of the Internet; however, franchisors should consider whether it is appropriate to charge their existing franchisees for creating, maintaining or updating this portion of their Web sites.

Web site Liability

Web sites can provide a wealth of information, but they can also lead to legal liability. Generally speaking, a Web site operator can be liable if a Web site user suffers loss or injury after relying on information posted on the Web site.

One way to limit such liability is to warn Web site users not to rely on the information posted on the site. This is often done through disclaimers in a Web site's terms of use.

However, even the most comprehensive disclaimer will not be enforceable if the Web site user does not know about it. In many jurisdictions, disclaimers are not enforceable if they are not actually brought to the attention of the user. This is why disclaimers should never be buried in small text at the bottom of a Web site. Ideally, disclaimers should be at the top of the Web site with a notice that the disclaimer applies to the user's activities on the Web site. This is not ideal from a marketing perspective, but it is preferable from a legal perspective.

If the Web site is being used to take orders or conduct other transactions, its terms need to be much more comprehensive. For example, sites need to include clauses for purchase terms, delivery terms, taxes, returns, representations and warranties, dispute resolution, and other terms. Given that the risk of liability with these types of contracts is greater than general Web site liability, it is even more important that the contract be enforceable. Accordingly, these types of contracts should be displayed to the user, and the user should be required to click "I Agree" before the transaction is completed. The user should also be shown a summary of his order, and be given an opportunity to correct any mistakes or cancel.

Franchisee Sites

A franchisee should be prohibited from operating its own Web site without the franchisor's prior written permission. If the franchisor gives its permission, the franchisee should only be permitted to operate a Web site as a sub-site of franchisor's host Web site.

For example, if the franchisor's Web site is at www.davis.ca, then its franchisees' sites could be at www.davis.ca/vancouver or www.davis.ca/toronto. This method ensures unity and control, and leaves no question in customers' minds regarding whether a franchisee is part of a larger, integrated system. It also gives the franchisor a significant advantage if a franchisee ever leaves the system, because the franchisor will have the ability to simply turn off the franchisee's Web site.

Intranets and Extranets

Many franchisors operate intranets and extranets. These are basically private networks accessible over the Internet to select individuals such as employees, franchisees and suppliers.

There are many uses for intranets and extranets, including communicating with franchisees on a confidential basis, collecting financial information from them, building monthly reports, monitoring quotas, providing online training and support, providing newsletters and bulletins, and providing access to updated copies of the franchise manual.

The franchise agreement should require all franchisees to participate in any intranet-extranet as required by the franchisor. Also, franchisees should be required to pay a reasonable fee to create, maintain and support the intranet-extranet. It is very prudent to require each of the franchisee's authorized users to agree to an online "terms of use" contract before giving them access to the intranet-extranet.

Blogs

"Blog" is short for "web log." A blog is basically a Web site or online bulletin board which contains up-to-date postings relating to a particular subject. Blogs are often used by individuals as online journals or discussion forums. However, corporate blogs are now becoming mainstream, as companies recognize the opportunity to communicate with customers in an informal and easily-accessible forum.

Franchisors could consider using blogs to communicate with their franchisees and potential customers. However, blogs must be updated frequently: at least once every day or two. Franchisors should appoint someone to be responsible for making these updates.

Third-Party Sites

Franchisors should also regularly monitor the Internet, looking for any infringement of their trademarks on third-party Web sites. Many Internet search engines permit users to automate this process by automatically searching for new Web pages which contain references to a particular search term, such as your company's name or trademarks.

It is also advisable to use a trademarks-watching service. This type of service monitors new trademark applications in various countries throughout the world, and will notify you if anyone applies to register a trademark that is similar to yours. Franchisors will then be able to oppose the application and send a "cease and desist" letter to the applicant.

Developing Area

The Internet is constantly developing. It is certainly an area where franchisors need to focus their attention, as developing trends, such as blogs, may provide a franchisor with an edge in the electronic marketplace.

RELATED ARTICLE: What the media is saying.

Investor's Business Daily 

Beyond Fast Food, Into Tech

If your idea of owning a franchise stops with a McDonald's or Subway outlet, think again.

Technology is changing what it means to be a franchisee.

"Franchising used to be all about fast food, lodging and cleaning carpets. But it's more high tech now, said Dick Rennick, chairman of the International Franchise Association trade group. "Franchising now includes people who can do more complex things like resurfacing driveways or repairing ink-jet cartridges. It's becoming more diverse and continues to grow in numbers."

Franchise owners say the trend's fed by several developments. One is that new technology like the Internet and wireless communication are carving out new business niches. Some consumers, for example, need special help in using computers and other digital gear.

Advances like digital sensors and monitors also help franchises get involved in complex security and repair services. And small, locally owned franchises can provide a "human touch" that's different form the customer service offered by bigger companies.

John L. Rogers, a partner of Davis & Company's Vancouver and Toronto offices, chairs its Franchise & Distribution Group and is a director of the IFA's Supplier Forum. He can be reached at 604-643-6316 or [e-mail].

Christopher L. Bennett, an associate at Davis & Company's Vancouver office, is a member of the firm's Franchise & Distribution and Intellectual Property Law Groups. He can be reached at 604-643-6308 or [e-mail].