International Franchise Association 49th Annual Legal Symposium May15-17, 2016 JW Marriott Washington, DC

Tweet, Like, Share, Repeat - Effective Management of a Franchise Brand’s Social

Media Program Steven Claussen Papa Murphy’s International, Inc. Vancouver, Washington Chad Finkelstein Dale & Lessmann LLP Toronto, Ontario Shannon McCarthy Miller Nash Graham & Dunn LLP Seattle, Washington

TABLE OF CONTENTS

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I. INTRODUCTION ................................................................................................. 1 II. FRANCHISOR SOCIAL MEDIA USE .................................................................. 2 III. APPROACHES TO FRANCHISEE SOCIAL MEDIA USE ................................... 3

A. Prior Approval ........................................................................................... 4 B. Content Provider Approach ....................................................................... 4 C. Centralized Approach ............................................................................... 4 D. Autonomous Approach ............................................................................. 5

IV. FRANCHISOR CONTROL .................................................................................. 5 A. Facebook Locations .................................................................................. 5 B. Twitter ....................................................................................................... 7

V. COMMON SOCIAL MEDIA USE ISSUES ........................................................... 8 A. Contests .................................................................................................... 8 B. Responding to Negative Comments ......................................................... 9 C. Using Social Media for Franchisee Recruitment ..................................... 10 D. Employee Issues .................................................................................... 11

VI. GOVERNING DOCUMENTS AND POLICIES................................................... 13 A. The Franchise Agreement ...................................................................... 13 B. Operations Manual ................................................................................. 14

VII. CREATING A SOCIAL MEDIA POLICY ............................................................ 14 A. Franchisor/Franchisee Control Balance .................................................. 14 B. Confidential and Proprietary Information ................................................. 14 C. Compliance with Laws ............................................................................ 15 D. Sensitive Topics ...................................................................................... 15 E. Ownership of Accounts and Content ...................................................... 16 F. Endorsements ......................................................................................... 16 G. User Names and Handles ....................................................................... 17 H. Etiquette .................................................................................................. 17 I. Marketing to Children .............................................................................. 17 J. Disclaimers ............................................................................................. 17

I. INTRODUCTION

Social media is the current “next big thing.” If you think social media is going away, you’re not paying attention. Most people are familiar with Facebook and Twitter, even if they do not have accounts, but social media is not limited to these two popular platforms. In this paper, social media is referring to several types of social networking platforms, including Instagram, Pinterest, or "refers to" Snapchat, Vine, and YouTube.

Participating in social media involves creating an account on an online or mobile application platform to post comments, pictures, and videos, share links to websites, and otherwise engage with others online. There are hundreds of social media sites that allow users to interact in the online world in different ways. The more common platforms are:

Facebook - with over one billion daily active users in December 2015, Facebook is by far the most used social media platform. Facebook has become so ubiquitous that many online publications (including newspapers and magazines) require users to login through their Facebook account to comment on stories.

Twitter - the world is communicating on this microblog at a rate of over 500 million tweets per day. Users communicate to the word in 140 character messages and Twitter introduced the world to the #hashtag. A hashtag is the “#” symbol appearing before a word or phrase for the purpose of grouping topics. For example, #IFALegal2016 is the IFA’s official hashtag for this conference. Anyone on Twitter can easily find tweets about the conference by searching the hashtag, and anyone tweeting about the conference can use the hashtags so their tweet will appear in the hashtag search results. By the end of 2015, Twitter claims over 320 million active monthly users.

Instagram - this is a the photo sharing site where users have shared more than 40 billion photos and where the use of filters became so common as to inspire the hashtag #nofilter to denote when no photo editing was made. Instagram claims approximately 400 million active monthly users.

Pinterest - this platform is the online equivalent of a pin board. Pinterest allows users to bookmark pictures and pages from around the web into one place and group them by category. Common categories are exercise and fitness, recipes, DIY projects, inspirational quotations, fashion, and education. Pinterest claims 100 million active monthly users.

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Snapchat - this rapidly growing social media platform allows users to send photos or videos that automatically delete within a few seconds of being viewed by the recipient. There is also a “story” feature that allows users to broadcast a snap for 24 hours. Snapchat is popular with teens, but has a growing popularity with adults, claiming 60% of 13-34 year olds as Snapchatters.

Vine - this is the popular video sharing platform, but limits videos to a maximum of six seconds. Like Snapchat, Vine is popular with teens, but Vine videos can be embedded on other social media platforms and websites. Vines automatically play on a continuous loop until the viewer leaves the page. Twitter, Vine’s parent company, has reported that Vine has 200 million active monthly users as of August 2015.

This paper will explore the franchisor’s use of social media as part of its marketing program, the various approaches to franchisor and franchisee use of social media, and common issues that arise when venturing into the world of social media. A sample social media policy is included here in Exhibit A.

II. FRANCHISOR SOCIAL MEDIA USE

The numbers alone do not tell the story of why a franchisor should add social media to its marketing strategy. The large number of users for each of these platforms is certainly impressive, but most of the users are outside of the U.S. and Canada. With over one billion users on social media, there is significant online noise to compete against advertisers. Franchising companies need to research whether their target audience is on the social media platforms they use or plans to use.

If a franchising company is not comfortable using social media in its marketing, at a minimum, it should consider registering for accounts using their primary trademark or trade name on the major social media platforms. By using the primary trademark to register social media accounts, franchisors can prevent others from misappropriating its intellectual property. It also gives the franchisor the ability to monitor online activity for potential trademark or copyright infringement.

Another benefit to franchisors for claiming social media accounts is that it becomes much easier to monitor discussions or mentions about the brand beyond infringement issues. Most social media pages limit access to registered users. Without this access, it is almost impossible for a company to hear what others are saying about its products, services, employees, or the competition. Even if a franchisor decides not to engage on a particular site, lurking on the site can be informative. Lurking is the term for

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reading material posted on a social media site without posting material or interacting with other users. It can be helpful to lurk on a site to learn how best to interact on it to make future engagement more meaningful to that site’s audience.

Monitoring social media also helps a franchisor determine if its target customer is using a particular social media platform. If the site is fairly new, the initial users are more likely to be young or tech-savvy early adapters. For example, Vine, the 6-second video streaming site now owned by Twitter, claims that 31.8% (source date 2-21-14) are 14-17 year olds and 71% (source date 9-25-15) are millennials, ages 16-36. But it’s not just kids and young adults who are hanging out on social media. A 2015 study by the Pew Research Center reported that 72% of adult American Internet users and 62% of all adult Americans have a Facebook account; 70% of all Facebook users logon daily.

There is no question that whatever a franchising company is selling, its customers are using social media. Most companies, including franchisors, already have a social media presence, whether it’s claiming a Facebook page, Twitter handle, Pinterest account, or others, they are on social media. But what about franchisees? Should a franchise brand allow its franchisees to use social media outlets to represent the brand and promote its business? Whether the brand itself is considering launching into social media or signing up for a new account on an emerging social media platform, or if it is considering authorizing franchisees to use social media, there are legal and business considerations to make before stepping into social media, and best practices to observe after taking the plunge.

III. APPROACHES TO FRANCHISEE SOCIAL MEDIA USE

Social media in a franchise system offers many potential benefits, so the question for most franchisors is not whether the system will use social media, but how? There are a number of considerations in answering that question:

• How will you convey a consistent company message and brand image?

• How will you assure compliance with laws across jurisdictions for things like contests and sweepstakes offered through social media?

• How will you manage responses to upset customers who post on social media?

• Do you need to keep a social media based discount offer in one market from being used in another market?

• Most importantly, how will social media content be kept relevant and current?

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The answers to these questions will determine the approach taken by the franchise system, and they generally hinge on the level of control the franchisor chooses to exert over its franchisees’ use of social media. Below, we discuss four possible approaches: prior approval, content provider, centralized, and autonomous.

A. Prior Approval Many franchise agreements require the franchisor’s approval prior to use of its

trademarks and logos in franchisee advertising and marketing materials. Extending this to social media seems logical. However, it may also prove unworkable. Social media relies on quick responses, and relevance is often short-lived. Requiring prior approval of each franchisee post in that environment will likely be cumbersome and limit the benefits the franchise system could otherwise derive from those platforms.

B. Content Provider Approach In this approach, the franchisor provides its franchisees with content they can

use on various social media platforms. For example, the franchisor can provide a library of videos, images, and tweets a franchisee can select and use in the franchisee’s own social media posts. The franchisor can also provide centralized resources to answer questions, give advice, and provide other support to franchisees in their use of social media. A key benefit of this approach is that content posted by franchisees appears to be localized and personal. On the other hand, the franchisor does not always know what its franchisees are posting and has a limited ability to monitor how others respond to franchisees’ posts.

C. Centralized Approach The franchisor may choose to have all social media content generated through

the franchisor (or a selected third party vendor), and prohibit individual franchisees from having their own local pages. In this model, a franchisee contacts the franchisor and requests that the franchisor post on behalf of franchisee on various social media platforms. The franchisee can ask for specific content, which the franchisor can post directly or first edit or enhance. On some social media platforms, the content posted by the franchisor can be given a local focus to the franchisee’s market through geocoding. Geocoding is the process of assigning latitude and longitude coordinates to an address or named location. The post can then be included in the news feed of potential customers near that location. If geocoding is not available for the platform, other method, such as hashtagging a specific market (e.g., #Knoxville), can work.

The obvious benefit of a centralized approach is that the franchisor is able to convey a consistent company message and brand image. One downside is that franchisees may balk at their lack of direct control of social media, particularly in their local markets. The franchisor also needs to be willing to provide resources and staffing

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sufficient to run the centralized program well, including being responsive to franchisee requests and to customers who post on the platforms.

D. Autonomous Approach The franchisor may choose to take the opposite of the centralized approach, and

allow franchisees full control of their own social media presence. This allows for maximum experimentation and flexibility in social media use, which can be attractive. It also limits the resources the franchisor needs to commit to social media. On the other hand, there may be some franchisees who will not have the time or skill to effectively use social media.

The most significant concern in the autonomous approach is that the franchisor loses direct control over message consistency and presentation of brand image. That is why, if a franchisor adopts this approach, a formal franchisee social media policy is needed.

IV. FRANCHISOR CONTROL

Every franchisor understands the value of an organized, structured, and nimble system, including support tools, technological resources, and updated, accessible operations manuals. Lumped together, these items form the playbook for the entire system, so that policies and procedures are understood by franchisees and effected uniformly. Accordingly, the tools, resources, policies, and support systems available on social media networks should be very relatable for franchisors and franchisees alike. While the terms of service of a particular social media platform may feel daunting to navigate, the elements that are most relevant to the franchise industry are structured to facilitate better engagement, rather than act as a prohibitive list of do’s and don’ts.

A. Facebook Locations A disclaimer at the outset – the discussion which follows in this section is not

intended to operate as a promotion or endorsement of the functionalities discussed here. Rather, it is intended to alert franchisors and their legal advisors to the functionality that exists which can lead to more effective management of social media programs and, in particular, can help to mitigate against some of the well-founded concerns and risks associated with authorizing franchisee maintenance of individual social media accounts.

One tool which warrants particular consideration in the context of this paper is Facebook’s “Locations” structure. This framework is vitally important to the successful management of any franchise system’s Facebook presence, but may have particular resonance to those franchisors who permit their franchisees to maintain their own Facebook pages. It is interesting to note that when Facebook first introduced the

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framework in 2011, it was branded with the highly-unfortunate name “Parent-Child.” The authors do not presume to know the precise reasoning for the re-branding to the far less draconian-sounding “Locations,” but it certainly could not have helped franchisor-franchisee relations when the latter was being deemed the “child” of the former by the world’s largest social media platform.

The importance of Locations lies in its usefulness to franchisors to manage multiple units with singular administration. Unfortunately, a franchisor cannot independently access the Locations framework without the assistance of a Facebook representative, but once the structure is activated, franchisors can seamlessly integrate any existing local pages and add new ones themselves. Once initiated, franchisors can input any location page by completing a number of fields on a form, including addresses and store numbers. Combined with Facebook’s mapping functionality, the tool has many attractive elements. As an administrator of the “parent” page, a franchisor can access a full list of franchisee pages (whether managed by the franchisor or the franchisee), and can also view the statistics related to each one, including audience reach, likes, and check-ins.

Local check-ins are reason enough to maintain Facebook pages for individual locations. It is short-sighted for any franchisor to assume that it can engage effectively via Facebook if it has a single, corporate page. A local page connects far better with direct customers by way of localized posts and specific offers. A single corporate page cannot do that in the same way. And in order to have check-ins on Facebook at all, a page needs to be associated with a physical address. One of the best ways to expand a brand’s reach on Facebook is by connecting with its customers to turn them into followers. If a franchisor does not have a local page, then it does not have an address which can be checked-in to. And if there is no check-in, then Facebook friends of the user have no real way of knowing that the user has patronized the location. This functionality is fairly representative of the main benefits of social media marketing for franchise systems, and underscores the importance of not only local pages (whether or not they are franchisee-run) but proper management of them.

Apart from the Locations framework’s enabling of easy creation of local pages for all franchised locations, another notable feature involves the maintenance of consistent branding. If a franchisor does not permit its franchisees to maintain their own local Facebook pages, then the constant updating of all of these pages would have been an administrative hassle prior to the introduction of Locations. But if a franchisor does permit local franchisee management of individual Facebook pages, then one of the franchisor’s biggest concerns is whether its branding is being used consistently and accurately. Locations enables franchisors to cascade all of its creative elements from one main administrative framework across all location pages, which means that design

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elements, color schemes, cover pictures, logo placements, and other related items will all appear identically, whether the page is franchisor-run or franchisee-run.

The central administration feature of Locations also enables franchisors to develop deals and promotions and cascade them across the system. This means that franchisors do not have to be concerned with whether or not a franchisee will promote a national, regional, or local promotion, and can place that promotion directly onto the local pages for all local followers to see.

And, as the “parent” administrator of a page or set of franchise pages, a franchisor can easily step in and manually remove any problematic content which is posted by a franchisee on its local page, or by a follower of that franchisee’s page. Needless to say, as the “parent” administrator of all “child” pages, a franchisor must ensure that it is devoting appropriate resources and personnel to constantly monitor franchisee content on their pages, and the manner in which they are engaging with their followers.

Franchisors are justifiably concerned about the loss of control over a Facebook page when a franchisee “goes rogue” or has exited the system and none of the franchisor, nor the former franchisee’s former employees know how to access the franchisee’s page. Facebook has mechanisms in place to retrieve pages for franchisors under these circumstances when passwords have been lost or, worse, the former franchisee is still active on its page. Franchisors will always have administrative access to its “child” pages under the Locations structure, even once a franchisee has left the system, so that control over the use and content of the page always rests with the franchisor.

B. Twitter Looking beyond Facebook, franchisors may also want to consider establishing

individual Twitter accounts for each location. Much like Facebook, an individual Twitter account associated with a local franchisee can facilitate more direct engagement with followers and customers, but Twitter does not offer the same functionality as Facebook in order to effectively manage this activity across the system. Further, absent the advanced mapping functionality which is available via Facebook and its local pages, the marketing benefits associated with individual franchisee Twitter accounts is not quite as self-evident. Maintaining brand consistency across local Twitter accounts can also be a challenge without the ease of ‘child’ pages. For instance, every franchisee will require a Twitter handle, and devising a method for every franchisee to use a similar naming convention could be problematic, e.g., using a handle of “@[Brand]_[City]” might seem like a good idea, but it can become complicated for a system which has more than one location per city.

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V. COMMON SOCIAL MEDIA USE ISSUES

A. Contests It is beyond the scope of this paper to detail the legal considerations when

structuring contests on social media to ensure that it complies with applicable criminal, gaming, and competition law. However, the terms of use mandated by social media platforms for running contests may be less known, but important.

For example, until August 2013, Facebook prohibited contests that employed Facebook functionality as part of the contest’s operation, including method of entry. After Facebook eliminated these prohibitions, companies were allowed to structure contests so users could enter by liking a post or commenting on a page. Facebook still maintains a handful of terms which must be complied with when administering a contest, including:

• brands may not require users to like a page to enter, but sending a message to the page is allowed;

• brands are not permitted to require users to tag themselves in content they are not actually depicted in;

• asking for users to “share” posts is a violation of the terms of service;

• the inclusion of a complete release of Facebook by each entrant or participant and an express acknowledgement that the promotion is in no way sponsored, endorsed, or administered by, or associated with, Facebook; and

• brands are prohibited from running contests on personal timelines or requiring users to share on their own timeline to enter or tag friends in a post to enter.

Twitter does not frame its terms of service relating to contests as conditions of use, but rather as “simple guidelines to follow to ensure your contest doesn’t ask anyone to violate any of Twitter’s rules.” These guidelines are more specific than Facebook’s terms, so franchisors should be sure they are aware of them in advance of structuring a contest using Twitter. Twitter’s guidelines ask contest organizers to:

• discourage users from creating multiple accounts in order to enter a contest more than once. Because creating more than one account by the same person may violate Twitter’s terms of use and may cause those accounts to be suspended, Twitter requires that a contest organizer’s rules expressly state that anyone found to be using multiple accounts to enter will be disqualified from contest participation;

• discourage multiple posts of the same tweet in order to enter a contest. Posting duplicate, or near duplicate, tweets violates Twitter’s terms of use and Twitter

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may block contests if they encourage duplicate tweets as a means of entry or enhancing a user’s odds of winning;

• refrain from asking users to include an @reply to the contest organizer, because it can lead to compromised search results when filtering through mentions to select a winner; and

• encourage the use of topics relevant to the contest. Using mentions and hashtags on unrelated topics may be deceptive and therefore violate of Twitter’s terms of use.

B. Responding to Negative Comments Social media is often described as a conversation between a brand owner and its

customers. However, as we all know, not all conversations go smoothly, the speakers do not always share the same opinions, and the casual nature of social media often leads to miscommunication. As a result, every franchise brand will encounter negative comments or reviews, either on one of the brand’s official social media accounts, impostor or griping accounts, or entire websites or blogs devoted to customer complaints, in some cases all dedicated to sharing unflattering customer experiences about one specific brand. Simply search Google for [company name sucks] and there is likely a blog, Twitter handle, or Facebook page dedicated to that topic.

More often, consumers are turning to social media to investigate potential goods or service providers. They may turn to established sources such as Yelp or other ratings websites, look for comments on Twitter, search by #hashtag or @mentions, or check out the Facebook page for comments. Wherever the potential customers may look, it is bad to see a negative comment or review, but it is worse to see one that has no response from the company. A customer who sees any type of response acknowledging the complaint will look far better than one who ignores them. It shows that the company cares and is engaged with its customers. At some point, every franchisor (and their franchisees that are authorized to have their own social media accounts) is likely to have an employee who responds to a customer complaint in a manner which (however well-intentioned) may not reflect the brand’s standards, or worse, may even violate applicable laws.

Franchisors should avoid the temptation to post fake positive comments in response to negative complaints or reviews. Posting under a fictitious name or asking employees, friends, or family to post positive comments, reviews, or ratings to combat negative reviews is an unfair and deceptive trade practice under Section 5 of the Federal Trade Commission Act and may also violate state laws. It also violates the terms of service of many ratings websites and the false comments will be removed or the account suspended or terminated. In the court of public opinion, the effects of being exposed as a poster of falsified positive comments or of not properly disclosing

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endorsed reviewers may be far more damaging than the actual damages which can be levied against a franchisor.

Accordingly, social media policies, as between a franchisor and franchisees and between a franchisor and its employees, should provide for some best practices regarding social media response strategies. Social media policies should make clear to franchisees or franchisor employees, as applicable, that creating false or misleading content, are entirely prohibited and constitutes a breach of a franchise agreement. While posting fraudulent reviews, or reviews which are not disclosed as being associated with the franchisor, may be a violation of the terms of the operations manual (and, by extension, the franchise agreement), this type of conduct can be relied upon as a default of the franchise agreement on the basis that it violates applicable laws.

C. Using Social Media for Franchisee Recruitment Social media can be a powerful tool for franchisee recruitment, including both

lead generation and lead nurturing. Paid advertising programs on Facebook are an effective, targeted way for franchisors to reach prospective franchisees. In fact, Facebook has custom audience targeting tools in place which enable a franchisor to target not individuals, but individual email addresses that may match other Facebook profiles known to the franchisor.

Franchisors should, of course, ensure that their own brand pages are used to solicit franchise opportunities, or a separate page set up by franchisor specifically for that purpose, and not the personal pages of its employees and representatives, including development personnel. One exception may be LinkedIn, which provides for a professional social networking environment, generally absent of photographs (beyond a profile picture), which may provide for a more appropriate forum for franchisors’ employees to engage directly and personally with a prospective franchisee.

Franchisors should discourage or prohibit franchisee development personnel from having conversations with prospective franchisees in private or direct messages. Giving or receiving private email or telephone information should be the limit of the use of these features and all other electronic communication should be through the franchisor’s email system. Alternatively, emerging franchise systems with fewer resources and personnel may feel that a personal connection is in keeping with its brand, but in those cases, it may be advisable for the franchisor owner to establish two different Facebook pages – one personal, one professional – so that engaging with a prospective franchisee by way of the latter does not lead to potentially embarrassing or inappropriate access to the content on the former.

Regardless of the platform, franchisors, their employees, and sales agents should take special care not to treat a social media exchange any less formally than any

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other correspondence in the course of a franchise sale. This includes not making any statement or representation that is inconsistent with the contents of a franchise disclosure document and, in particular, not making any statement or representation which could be construed as a financial performance representation that differs from Item 19 in the current FDD, if any. Franchise development personnel must have training to understand that they need to keep communications professional and resist the urge to respond in a casual manner by making off-hand remarks that differ from the franchise disclosure document regarding actual or potential earnings, and to direct all such inquiries to the contents of the franchise disclosure document for certainty.

It is critical for franchisors who maintain social media profiles to not post the personal information of individual customers, users, followers, or “friends.” Despite the familiarity with prospective franchisees and customers that social media breeds, the disclosure of an individual’s personal information online may exceed the scope of the franchisor’s privacy policy. Franchisor employees who are responsible for posting material on social media should be made aware of the potential liability they may expose the franchisor to by not adhering to privacy and protection of personal information laws.

D. Employee Issues Many employees spend a large portion of their workdays on social media, which

can cut into their productivity. Further, the more time an individual spends on social networking, the greater the chance that an online misconduct can occur. Franchisors should develop policies and monitoring systems that restrict the amount of time that employees are engaged in these types of activities. Franchisors should always be wary of the liability that can arise from their employees’ online conduct, even if such conduct happens during non-work hours. While only some employees may engage in social media as part of their job description, franchisors should consider adopting internal social media policies for all employees that address which forms of conduct are acceptable and those that are not. Many guidelines included in the sample social media policy attached as Exhibit A will apply to franchisor employees using social media as part of their job, but there may be a need to also adopt policies that will only apply in the employer/employee context.

The policy for employees should include a prominent disclosure that the employees have no expectation of privacy and the franchisor has the right to monitor all online activity, including personal social media activity during working hours. Franchisors should include policies and procedures that address password protection, protecting personal or confidential information stored on portable devices such as laptops and mobile phones, respecting the intellectual property rights of the franchisor

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and others, maintaining franchisor confidential information and trade secrets, and general good conduct while online.

The franchisor may set whatever parameters it deems appropriate for its employees’ use of social media on its behalf and in the course of their employment, and they can limit or prohibit employees from personal use of social media during working hours. Recent decisions by the National Labor Relations Board (NLRB) now limit an employer’s ability to discipline or terminate an employee for his or her online activities outside of work. Employers cannot discipline an employee for making negative statements about her employer, supervisor, other employees, or the workplace environment. Also prohibited are policies that restrict employees’ rights under the National Labor Relations Act, such as discussions involving wages, benefits, or terms of employment. Employers can prohibit employees from engaging in social media communications that include maliciously false statements about the employer or that violate laws or specific company policies against harassment, bullying, discrimination, or retaliation. Employers can also prohibit employees from representing themselves as spokespersons for the company.

The NLRB has issued recent decisions indicating a franchisor can be found to be a joint employer with its franchisees if the franchisor has the right to control the franchisee’s employees. In Browning-Ferris Industries of California, Inc., the NLRB used “indirect control” as an element for determining a joint employer relationship and the NLRB general counsel has alleged that McDonald’s is a joint employer with its franchisees in several claims of unfair labor practices. In light of these cases, franchisors should avoid social media policy provisions mandating what a franchisee’s employees can and cannot post on social media. An alternative approach is to make clear in the social media policy that the franchisee is solely responsible for assuring social media content posted by the franchisee’s employees mentioning the brand complies with the policy.

Franchisor employees should receive training regarding protecting the franchisor’s confidential information, trade secrets, and other internal or proprietary information. Franchisors may consider limiting which employees can access certain types of confidential information. Furthermore, the franchisor may want to educate its employees as to the dangers of online disclosures, whether purposeful or inadvertent. This is a particular concern for publicly traded companies which can face serious regulatory penalties for non-compliant disclosure of certain information, not to mention the impact this may have on the share value. The duty to maintain confidentiality is one that transcends the regular workday.

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VI. GOVERNING DOCUMENTS AND POLICIES

When a franchisor decides to allow franchisees to use social media in the promotion and marketing of their franchised locations, it should ensure that it retains the level of control needed to protect the brand.

A. The Franchise Agreement Even a franchise agreement drafted before any social media platforms existed

likely has language the franchisor can rely on to exercise some control over franchisees’ use of social media. The essence of almost any franchise is a license to use the franchisor’s trademarks and other intellectual property in the franchisee’s business. The franchise agreement places limits on using that license. For example, there should be language prohibiting using the marks in a manner injurious or detrimental to the brand. There may also be a requirement that use of the marks be previously approved by the franchisor. To the extent social media content posted by franchisees includes the marks or other franchisor intellectual property, it will be subject to the limits on the license contained in the franchise agreement.

If a franchise agreement has not been updated since the advent of social media, doing so now is a good idea. Social media is here to stay, and possibly the greatest legal risk is ignoring it. Franchisors should add language specifying social media are channels of commerce covered by the franchise agreement, the use of which franchisor has the right to control. The language should be crafted broadly enough to recognize there will be additional and as yet unknown social media channels in the future. Here is an example with a strong reservation of the franchisor’s rights:

“We [franchisor] retain the sole right to use the Trademarks on the Internet and any media for electronic communication, including on websites, as domain names, directory addresses, metatags, and in connection with linking, advertising, co-branding, social media, and other arrangements. We retain the right to approve any linking or other use of our website. You [franchisee] may not establish a presence on, or market using, the Internet or any other form of electronic communication except as we may specify, or with our prior written consent. You may not engage in text marketing or marketing using any other form of electronic communication via cell phone, smart phone, or other personal digital assistant without our express permission and ensuring that such marketing complies with our policies and requirements set forth in the Operations Manual. All marketing by any electronic means must be coordinated through us and approved by us.”

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B. Operations Manual Many franchisors’ operations manuals already include a lot of specifics about

advertising and media use. Adding sections to address social media use should be a simple decision. If a franchisor chooses to adopt a full social media policy for its franchisees (as discussed further, below), the operations manual is also a good place to do that. Among other things, the revisions to an operations manual can be implemented throughout a franchise system much quicker than through the franchise agreement (new terms in a franchise agreement are not implemented until all existing agreements expire and are renewed using the form of agreement with the new terms). This flexibility is important for policies that are subject to change as technology evolves, as is the case with social media. Franchise agreements usually incorporate the operations manual by reference, meaning failure to follow a social media policy included in the operations manual would be a default under the franchise agreement. This gives the franchisor an important tool for enforcing the policy.

VII. CREATING A SOCIAL MEDIA POLICY

Social media’s instantaneous nature and potentially massive audience make it a double-edged sword. On one hand, it can be one of the most powerful tools available for marketing and creating brand awareness. On the other, it can significantly damage a business’s reputation in a matter of moments. That is why many companies have developed internal policies governing social media use. The risks that lead companies to adopt social media policies for their employees are also present in a franchise system, but amplified because franchisees are both independent business owners and representatives of the franchise’s brand. These risks increase with the level of autonomy given to franchisees in their use of social media. Some type of social media policy is therefore imperative in a franchise system. Below are things to consider in creating such a policy.

A. Franchisor/Franchisee Control Balance How extensive and detailed a social media policy needs to be depends to a large

extent on how much control the franchisor exerts over franchisees’ social media use. In the “centralized approach” described above, a policy can be as simple as saying: (1) all social media will go through the franchisor; and (2) franchisees are prohibited from having their own independent social media presence. As franchisees’ discretion in social media usage increases, a franchisor’s need to add detail to its social media policy will also likely increase.

B. Confidential and Proprietary Information Almost all franchise systems involve trade secrets, particular methods of

operation, and other proprietary information. Access to this information is often an

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integral part of what the franchisee is purchasing from the franchisor when entering into the franchise agreement. It is important that this valuable information not be given away, and a social media policy should protect against this. For example, in a restaurant franchise, the policy could admonish franchisees to avoid posts that include recipes or specific “secret” ingredients.

Another confidentiality dimension is added if a franchisor is a publicly traded company. Federal and state securities laws prohibit disclosure and use of material non-public information (MNPI). The most obvious example of MNPI is financial performance data, and franchisees may have access to such information as part of their participation in the franchise system. MNPI can also include things like significant marketing initiatives and newly developed products, both of which may be known to franchisees before they are known to the general public. For publicly traded franchisors (and maybe any franchisor), a social media policy should prohibit posts that include MNPI.

C. Compliance with Laws Social media may seem like the Wild West, but laws that apply in the real world

also tend to apply in the virtual world. Violations of libel, discrimination, privacy, or trademark laws using social media platforms can have very real consequences. It would be impractical for a franchisor to determine every permutation of the law that might apply to its franchisees’ social media usage and attempt to enforce those laws across the franchise system. A social media policy should make clear that franchisees are responsible for assuring their social media usage complies with all applicable laws.

D. Sensitive Topics Just like a family, not everyone always gets along in a franchise system.

Disagreements are not uncommon and can get acrimonious. However, like a family, there are reasons not to air dirty laundry in public – damage to the reputation of the brand negatively affects the value of franchisees’ and franchisors’ investment in the franchise system. A social media policy should forbid posts about disputes, lawsuits, and legal settlements involving the franchise system or its members. Posts regarding legal compliance issues impacting the franchise system should also be avoided.

Most franchise systems will want to consider barring posts about provocative topics like politics and religion. There is a place for such topics, and they tend to be wildly popular on social media platforms. However, social media use in a franchise system should promote the brand, and posting on divisive topics is unlikely to achieve that goal. As a result, a franchisor’s social media policy for franchisees may differ from the social media policy for the franchisor’s employees.

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E. Ownership of Accounts and Content Like any agreement involving a license to use intellectual property, most

franchise agreements include provisions about who owns the things created or derived from that intellectual property. Not surprisingly, the franchise agreement usually reserves franchisor’s rights in and to those things. Typical language may read something like this:

“Franchisee hereby permanently and irrevocably assigns to Franchisor any and all rights and interests (including intellectual property rights and interests) in anything developed by Franchisee, or on Franchisee’s behalf, if developed in whole or in part in connection with the business that Franchisee is licensed to operate under this Agreement.”

How does this provision apply in the social media context? For example, who owns the Facebook page a franchisee develops to promote his or her franchised business? What about all the “friends” and “likes” that Facebook page acquires? And what happens to the Facebook page if the franchisee’s right to operate the franchised business ends? The provision above is arguably broad enough to make the Facebook page, and the “friends” and “likes” associated with it, the property of the franchisor both within and after the term of the franchise agreement. Making that explicit in a social media policy is a good idea (as well as updating the language in future franchise agreements to cover this). The policy should state who owns rights in any social media platform developed for the franchised business, as well as rights to any customer and similar data generated from those social media platforms. The franchise agreement should also include a provision assigning any residual rights in the platform and data when the franchise agreement expires or otherwise terminates.

F. Endorsements The Federal Trade Commission (FTC) is charged with enforcing laws prohibiting

false and misleading advertising. In 2009, the FTC issued guidelines on complying with these laws in the social media context. The guidelines say that if there is a connection between the endorser and the marketer of a product that could affect how people evaluate the endorsement, it should be disclosed. For example, if a franchisee gives a blogger a gift card in return for a positive review of the franchisee’s business, the FTC’s guidelines suggest it should be disclosed in the blogger’s review. This would also seem to mean a franchisee should disclose his or her relationship with the franchisor when posting an online review of the franchisor’s products or services. Failure to do so could result in the FTC investigating whether the review constitutes false or misleading advertising. To decrease this risk, it makes sense to adopt the concepts in the FTC’s endorsement guidelines as part of a franchise system’s social media policy.

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G. User Names and Handles Users on most, if not all, social media platforms are required to provide a name

or “handle” that is associated with the user’s posts. In a franchise system, the franchisor should consider adopting rules and conventions for these names and handles. If a franchisee is representing the brand, franchisee user names should possibly include the brand name (and, conversely, names associated with personal non-business use should not contain the brand name). There may also be reasons to associate the name with a specific market so that posts are more likely to show in search results for that market. And, as discussed above with regard to ownership of accounts, the policy should specify what happens to the user name or handle when the user is no longer part of the franchise system.

H. Etiquette Anyone who has spent time online has likely experienced examples of the

outrageous incivility that seems endemic to social media. The anonymity and remoteness of social media communication arguably encourage bad behavior. Franchisees who use social media are brand ambassadors. Obviously, a franchise system wants to discourage rudeness and personal attacks by those ambassadors. Reminders regarding basic social media etiquette are therefore a worthwhile element of a social media policy.

I. Marketing to Children In the United States, the Children’s Online Privacy Protection Act of 1998

(COPPA) governs the collection of information from children under 13. COPPA applies to operators of commercial websites, online services, online and mobile applications, and general audience websites that collect, use, or disclose personal information received from children. The FTC is tasked enforcing COPPA. Any operator of a website that is directed to children should include policies specifically for handling personal information provided by children, including providing direct notice to parents and receive verifiable parental consent before collecting personal information of children. The FTC’s definition of “personal information” includes first and last name, home address, online contact information, screen or user names, persistent identifiers, telephone number, social security number, photo, or video that contains an image of the child, geolocation information to identify the location of the child, and any combinations that include any of the above information.

J. Disclaimers Disclaimers tend to be near and dear to every attorney, and there are good

reasons to include them in a social media policy. Social media platforms and the laws and rules governing their use are very much in flux. It is possible for one to follow every

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mandate of a well-crafted social media policy and still run afoul of an unanticipated evolution in the applicable law or the platform provider’s terms of use. The policy should include a statement that complying with the policy is not a guarantee of compliance with laws or any social media platform’s terms of use and it is each individual social media user’s responsibility to determine those laws and terms applicable to his or her use.

Disclaimers can also lessen the impact of rogue posts that may reflect badly on the brand. Consider adding a provision to the policy requiring a disclaimer in user posts that the post is attributable solely to the individual user and does not express the opinions, thoughts, strategies or position of the brand.

EXHIBIT A

SAMPLE SOCIAL MEDIA POLICY

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Introduction Franchisor recognizes that the internet provides unique opportunities to participate in interactive discussions and share information on particular topics using a wide variety of social media, such as Facebook, Twitter, Pinterest, YouTube, Snapchat, Vine, blogs, podcasts and wikis (collectively, “Social Media”). The foregoing list is not exclusive and the term ‘Social Media’ applies to any social networking website, mobile application, blog or microblog, public and private message boards, comment sections, etc. However, a franchisee’s use of social media can pose risks to our confidential and proprietary information, and our reputation and brands. To minimize these business and legal risks, and to ensure that our brand standards are maintained, and our trademarks are used appropriately, Franchisor requires its franchisees to adhere to the following guidelines and rules regarding social media use. To ensure responsible and appropriate use of Social Media, this policy has been adopted to provide guidelines on your use of Social Media in your personal capacity (“Personal Use”) and as a franchisee of the Franchisor (“Business Use”). Certain policies apply to a franchisee’s use of Social Media for both Personal Use and Business Use; some policies differ depending on the type of use. This policy is subject to change at any time. The Franchisor has the right to monitor all franchisee public Social Media accounts and activity. This policy does not contain all information relevant to compliance with applicable law or Social Media site’s terms of service. Franchisees are responsible for investigating all laws and terms of service before engaging in Social Media. Authorized Business Use of Social Media Franchisees may wish to use Social Media to promote their franchised business and to engage with customers to build brand loyalty. All use of Social Media for Business Use must be approved by the Franchisor prior to franchisee creating Social Media accounts. Before creating Social Media accounts, each franchisee must decide if using Social Media for the franchised business is a valuable use of the his or her time. Creating, monitoring, and maintaining Social Media accounts require a significant investment of time. After any accounts are created, franchisees should be constantly monitoring their Social Media accounts to monitor what is being said about the franchised business and the Franchise System, and responding to messages. This can end up taking up much of the franchisee’s free time, which is why you should decide in advance whether you have the time and resources for social media. If you’re already

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strapped for time or resources, consider waiting before creating Social Media accounts until a later time. Using Social Media is not a substitute for each franchisee’s obligations to advertise and market the franchised business as required in the franchise agreement and the Operations Manuals. Social Media should supplement franchisee’s other promotional channels in the community. A. Creating Social Media Accounts; Approval

1. Franchisee’s use of Social Media for Business Use is governed by the terms of the franchise agreement, the Operations Manuals, and this policy.

2. If Franchisee receives authorization to create a Social Media account, franchisee is required to use our approved naming convention for the account name. The Social Media account requested for use must either be on the Franchisor’s approved list (available in the Operations Manual) or approved in advance by the Franchisor. The Franchisor reserves the right to require franchisees to discontinue use of a particular Social Media account at any time and in its sole discretion.

3. All Social Media accounts and intellectual property created or used by franchisees to promote or market the franchised business (“Social Media Marketing Material”) or the Franchise System belong solely to the Franchisor. The Franchisor shall own and have the right to control all Social Media Marketing Material whether the franchisee creates the account or uses, manages, or accesses it. Social Media Marketing Material includes any and all log-in information, data, passwords, trademarks, and content related to the account, including all followers, subscribers, and contacts. Social Work Marketing Material does not include Social Media accounts that are created or used by the franchisee exclusively for the franchisee’s personal use.

4. Username and password information for all Social Media Marketing Material shall be promptly reported to the Franchisor and not changed without prior written authorization from the Franchisor.

5. Franchisees are required to include a link to the Franchisor’s public website on all social media sites and include links to the official Franchisor brand Facebook page and Twitter as appropriate.

B. Posting Content on Social Media

1. Franchisee speaks for itself and not the Franchisor. The franchisee is not permitted to make any statements on its Social Media accounts on behalf of the Franchisor unless specifically authorized to do so. Although the franchisee’s

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Social Media accounts are specific to the franchised business, they still represent the Franchise System as a whole and the Franchisor has the right to control brand messaging.

2. All posts on the franchisee’s Social Media accounts must comply with the Franchisor’s brand guidelines. All Social Media posts on franchisee accounts are considered Franchisor’s marketing materials. E.g.:

a. Use only approved trademarks, tradenames, slogans, logos, and other media.

b. No altering the color, layout, or language of our approved logos c. No inserting our logo onto an unapproved image or video d. No making unapproved offers

Franchisees must comply immediately with any request by Franchisor to remove or modify any content contained on franchisee’s Social Media accounts.

3. Franchisees are not permitted to post any photographs, graphics, music, videos, artwork, written expression of ideas, or any other copyrighted materials, without proper attribution or advance permission of the author, creator, or owner, regardless of whether the materials are marked as copyrighted. Attribution includes providing track back details to the original post or content.

4. Franchisees may not post the trademarks, slogans, or logos of competitors without the prior written authorization of the Franchisor.

5. Social Media is to be used to promote the franchised business and engage with customers. The franchisee is not permitted to post information about any of the following:

a. Financial information about the Franchisor, the franchisee, other franchisees, or the Franchise System generally.

b. Proprietary and confidential information such as trade secrets, methods of operation, recipes, secret ingredients, company internal systems, new services, future new products and future marketing initiatives.

c. Employee matters including disciplinary matters of your employees, franchisor employees, or employees of other franchisees.

d. Legal issues involving the Franchise System including disputes or disagreements within the system and with third parties, lawsuits, compliance issues, and similar matters.

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e. General business matters related to the Franchisor or vendor information.

6. Always use a Social Media site in accordance with its terms of use. Franchisees should review the terms of use of all Social Media sites they use and ensure their use complies with them. Franchisees should pay particular attention to terms relating to:

a. Prohibitions or restrictions on the use of the Social Media site, including prohibitions or restrictions on use for advertising, marketing, contests, and promotions or other commercial purposes.

b. Ownership of intellectual property used on, or information collected or generated through the use of, the site.

c. Requirements for licenses or other permissions allowing use by the site owner and other third parties of the company’s trademarks or other intellectual property.

7. Franchisees must always use Social Media in compliance with applicable laws. Franchisees should pay particular attention to laws regarding unsolicited communications, misleading advertising, conducting contests and advertising to minors.

8. Franchisees may task employees with assisting them in engaging in Social Media. Franchisees are responsible for ensuring their employees are aware of this policy and the terms of the franchise agreement and Operations Manual that apply to franchisee’s use of Social Media. Franchisees are solely responsible for content created by their employees.

Personal Use of Social Media We recognize that franchisees may use Social Media in their personal time and in a matter unrelated to their franchised business. This type of use is not prohibited, but the franchisee is bound to observe the obligations to protect Franchisor’s confidential and proprietary information. This policy applies to franchisees Personal Use of Social Media regardless of whether the franchisee posts under his or her name, under a pseudonym, or anonymously.

1. Franchisees may not create personal Social Media accounts using @franchisor.com email addresses.

2. Do not create personal Social Media account names or user profiles using the Franchisor’s primary trademark, any trade names, or any part of these. Franchisees are also prohibited from using any logos or trademarks owned by the Franchisor as its Social Media avatar, user photo, cover page, or other image representing its identity.

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3. Franchisees must make a prominent disclaimer that their Social Media accounts are their personal accounts and state “the postings on this site are my own and do not represent the opinions of Franchisor or its affiliates or other franchisees.” Franchisees should use good judgment about what they post and remember that anything posted online can reflect on the Franchisor and the Franchise System, even if a disclaimer is used.

4. Franchisees are not permitted to conduct franchise business over personal Social Media accounts and are not to post confidential or sensitive information about the franchised business. For example, franchisees are not permitted to post information about the Franchisor, operations, employees (the franchisee’s or the Franchisor’s), or suppliers.

5. All communications with franchisee customers and employees should be conducted through Business Use communication channels, not the franchisee’s personal Social Media accounts.

6. Franchisees may not discuss franchise business on their personal Social Media accounts unless it is to promote the franchised business and otherwise complies with the policies discussed under “Business Use” above.

7. Franchisees are not permitted to disparage competitors. Remember that content posted online lives forever, and assume social media content will be seen in connection with your ownership of your franchised business, even if you post on “private” sites or pages, or anonymously. Your fellow franchisees, your employees, competitors, customers, and your friends and family may eventually see everything you do online, so please keep your online activities respectful. While engaging in Social Media through private accounts, franchisees should be aware that friends and followers may know of the franchisee’s connection to the Franchisor and the franchised business. Personal remarks may reflect on the franchised business and the Franchise System. Franchisee’s should take care to make sure their personal online is one that would not reflect badly on their business or the Franchisor if posts, pictures, comments, or other Social Media activity if it were made public. With these matters in mind, please consider the following when engaging in Personal Use of Social Media:

• Avoid using profanity, obscenities, ethnic slurs, or making sexist comments • Do not make defamatory or disparaging comments • Do not use Social Media to threaten, harass or intimidate • Do not pick fights or be overly aggressive • Avoid discussions about politics or religion • Avoid posting in anger