New York Papa John's Franchisees Free To Change Trade Dress

LOUISVILLE, Ky. (Blue MauMau) – Papa John’s International, Inc. is requiring its New York City franchisees to create their own menu panels to meet city nutritional labeling requirements, resulting in some unhappy franchisees. The city now requires calorie counts to be disclosed by restaurant chains. It is the latest effort in the fat wars, a popular term given to calorie and fat-content laws of the past few years and the resultant string of unsuccessful litigation.

Some of Papa John’s NYC franchise owners feel that Papa John’s is abdicating what they feel is a fundamental branding responsibility.

Chris Sternberg, Vice President of Corporate Communications for Papa John’s International, Inc. in Louisville, Kentucky confirms that franchise owners are on their own in creating a menu panel.

A franchise chain's most valuable asset is its brand. The company’s reputation and credibility is what makes up the brand. So it is surprising to see a franchise chain instruct franchisees to customize their menu boards as they deem fit. What seems to be at stake isn’t as much about a menu board as it is about who controls the brand and who has the higher legal risk if the nutritional information on that menu board is wrong.

Mr. Sternberg disagrees that there's a brand issue or that the company is passing on legal risk to franchisees. “Papa John's could not do a one size fits all because of the myriad proposed regulations around the country," he says.

San Francisco and King's County in Washington have recently announced intentions to launch a calorie and nutritional labeling law. More cities and states are talking about issuing such laws.

Sternberg declares, "We supplied all the information and suggested that franchisees customize the boards since they need to comply with myriad local or state regulations. That is where we stand on this.”

Franchise attorney Rupert Barkoff of Kilpatrick Stockton LLP in Atlanta, Georgia interjects, “I’m surprised by the Papa John’s solution. Franchisees really are not just buying into the expertise of the franchisor, but they are also buying into the leadership.”

Still, Sternberg doesn't see it that way. "We’ve always tried to be supportive of our franchise community," he says. "We gave our New York franchisees information and stand behind it. We gave them a link to our website so that they can download the [nutrition] information as we update it from time to time. As an example, we just rolled out a whole-wheat crust last month and a specialty pizza. We’ve updated the calorie content at our website for those products and have sent a communication to our franchise community reminding them of that.”

Barkoff, one of the industry's leading franchisor and franchisee attorneys, explains that there are major franchise issues at stake.

“What is a brand?" he asks. "It is a promise to the public."

"But a brand loses the public faith when customers see a hamburger listed, for example, and it is listed as only 400 calories but it really has 700. With such a faux pas, will customers believe the next thing a brand declares about its food, product, quality, and so forth?"

"At a minimum I would think that Papa John’s would want to approve the menu boards," says Barkoff.

Still, Sternberg insists, “Papa John's can’t give legal advice or run the businesses for our franchisees. What we can do is be supportive of our franchise community on instances like this. We give owners information and stand behind that information.”

“This could be a business risk analysis,” Barkoff interjects. “If the franchisor strongly enforces a standard then they’ll be more liable when things go wrong. On the other hand, if they do not do enough, the franchisor could also risk failure to protect their trademark standards. The degree of franchisor control is the real issue in what is called vicarious liability. The trade off of minimizing risk is that it is your brand out there.”

Milford, Connecticut-based Subway restaurants has used a completely different strategy. It firmly controls the creation and distribution of its signage, including necessary changes to its New York City menus.

Different franchise systems sometimes allow customization in signs. Still, most regard the menu board as a key branded item in a quick service restaurant.

Susan Murphy, president of Circle R Brands, a marketing company that specializes in creating brands, says, “One of the key elements that all customers look at is a menu board. That's why quick service restaurant chains guard this form of trade dress with their life.”

Les Winograd, public relations coordinator for Subway Restaurants, is of this viewpoint: "Providing menu panels is part of what we as a franchisor do," he declares.

“When we change the content of our menus, we send them out en masse throughout the country,” elaborates Winograd. “The only thing the franchisee has to add is the price, which they set themselves. In the case of New York, we had to include the nutritional information that the city required."

Winograd explains why the firm thinks that central control of logos and signs—including menu panels—is so important. "Subway creates and distributes the panels ourselves because of the need for brand consistency,” he says. “We handle a great variety [of menu boards] such as promotional items in a specific market."

Paul Landino, president of Subcon Inc., a franchisee who has helped develop 388 Subway restaurants in Connecticut and New York, agrees. “Subway has provided our units with everything needed to conform to the new nutrition labeling law. They’ve been great," he states. "But I have to admit, if Subway said they weren’t going to make the menu panels, and that I would be left to do it myself, I would have found that to be a negative thing."

Landino observes, “When a franchisor deals with a franchise, people are working together in a homogeneous way to build a successful track of businesses. These are new laws and the people who are regulating this aren’t restaurateurs. They are making it up the best they can and Subway is trying to accommodate that. It is going to take a bit of tug and pull to get this right and in a format that the public and the regulators agree to be what the intent of the law is."

Other fast-food chains have created their own menu board to provide a uniform trade dress. Wendy's, Dunkin' Donuts, McDonalds and other quick service restaurant chains have issued corporate created menu boards for New York City's calorie requirements. Menu boards are typically billed to the franchisee by the franchisor.