Social Media and Advertising Issues Jonathan Flintoft, Baker & McKenzie Rebecca Bedford, Minter Ellison 1
Introduction 1. Contractual issues • Addressing social media advertising in the franchise agreement • Impact of permitting online/ social media advertising on other terms of franchise agreement 2. Regulatory issues • Issues with testimonials • Native advertising and use of bloggers 2
CONTRACTUAL ISSUES 3
What does the franchise agreement say? • Does the agreement permit or prohibit internet advertising by the franchisee? • Does the agreement expressly deal with use by the franchisee of social media? • Example: Franchisee shall use advertising techniques such as event sponsorships, joint promotions and internet/ social media channels, as well as printed media – appears to permit use of social media by franchisee – but rights are potentially broad and unfettered 4
What does the franchise agreement say? • The agreement should – make it clear what can/cannot be done on social media – be broad enough to cover advances in technology – address ownership of content/ use of IP on social media platforms 5
Approaches to social media advertising in franchise agreement 1. Use of social media controlled by franchisor/ no rights for franchisee – franchisee prohibited from establishing website or social media account relating to franchised business or products/ services – sole right of franchisor to set up and control website or social media presence – franchisees may have limited participation – eg. ability to make posts, links to franchisee websites – likely to be applicable where franchisor in-country and/or has franchisor operated franchises 6
Approaches to social media advertising in franchise agreement 2. Use of social media permitted by franchisee – may be appropriate where franchisor has no in- country presence or operations – local social media pages may be an effective marketing tool and assist with engaging local consumers – eg. through competitions – franchisor should consider carefully what rights franchisee should have to operate in social media and ensure there are appropriate controls in the agreement 7
Considerations for franchise agreement • Controls over social media platforms that may be used – franchisor consent in all cases? – Facebook only? what about Twitter, Instagram, Pinterest, etc? – blanket permission may be problematic in view of likely future changes • Responsibility for costs of setting up and maintaining social media pages • Approval of user names/ content by franchisor – eg. user name should indicate particular territory – pre-vetting of content by franchisor before uploading 8
Considerations for franchise agreement (cont.) • Responsibility for creation/ management of content – clear statement to users that page is run by franchisee – compliance with laws and rules of particular platform – complaint handling/ take down procedures • Provision of content by franchisor – can franchisee only use content provided by franchisor? – consider whether appropriate in particular market • If franchisee is permitted to create content, who owns it? – owned by franchisor to extent refers to franchisor’s trade marks, products, etc? • O bligation to comply with franchisor’s directions 9
Considerations for franchise agreement (cont.) • Specific indemnity by franchisee in favour of franchisor? • Procedures on expiry/ termination – transfer of social media accounts to franchisor (to the extent possible) – termination of accounts – transfer of content → rules of the particular social media platforms will be relevant Note: social media policies should be regularly reviewed and updated due to the frequent changes to the rules of use of the various platforms and likely changes to the types of platforms available 10
Impact on other terms of agreement • Territories • Restraints of trade 11
Territories • Tension between the traditional idea of the franchise territory and the ‘borderless’ nature of the internet • Drafting of territory clauses going forward will require fresh thinking • But risks remain where franchisors are operating under outdated agreements 12
Territories • ‘Virtual’ encroachment • The sorts of claims franchisors may face have not significantly changed from those made in ‘traditional’ encroachment cases • But the risks of franchisor liability have increased because of the growth in online commerce 13
Territories • Legal risks to franchisors flowing from online activity: – breach of the franchise agreement – misleading or deceptive conduct and related claims under the CCA – unconscionable conduct claims – claims based on good faith 14
Territories • Case study – Video Ezy • Poorly drafted territory clause – [the franchisor will not] carry on the trade or business ...within the territory... • Franchisor argued sales ‘into’ the territory were not sales ‘within’ the territory • Court rejected the argument • Breach of: - territory clause - implied term of good faith - unconscionability provisions of CCA 15
Territories • How to mitigate the risks? – Terms clearly permitting sales into the territory (cf. the poor drafting of the Video Ezy clause) – ‘Marketing’ as opposed to sales and distribution territories – Careful analysis of existing franchise agreement before franchisor undertakes online operations 16
Territories • Issue of franchisees encroaching on each other’s territory • Different models to give franchisors control of online operations: – ‘absolute’ control – control of ‘public face’ of online operations 17
Territories • Important to consider competition issues associated with online sales • Note amendments to Franchising Code regarding disclosure of online operations 18
Restraints • Key problem is that traditionally drafted franchise clauses may be easily circumvented by former franchisees using online operations • Need to draft in order to capture online activity – but this potentially increases the risk of the clause being found to be unenforceable 19
REGULATORY ISSUES 20
Online testimonials • Risks in the franchising context • Brand damage • Astro turfing • Commercial risks: – inconsistent messaging – degradation of the brand and other intellectual property • Vetting may be reduced 21
Online testimonials • Legal risks: – misleading and deceptive conduct under the CCA – specific prohibitions against false or misleading representations • Even unsolicited testimonials may give rise to franchisor liability where: – the franchisor is aware of the testimonial; – the franchisor has the ability to remove it; and – the franchisor fails to take steps to remove it 22
Online testimonials • ‘Online review platforms’ – Urbanspoon and TripAdvisor are popular examples • Risks associated with franchisors’ encouraging the posting of online testimonials on third-party sites • Electrodry proceedings currently before the Federal Court provides a good example 23
Online testimonials • Electrodry: – Carpet cleaning franchisor – ACCC brought proceedings in July for misleading or deceptive conduct/false representations – Proceedings still before the Court – Allegations that Electrodry instructed a contractor and franchisees to post fake testimonials on various online review platforms: • Amazing Job! • Fantastic Result! • These guys are the best cleaners! 24
Online testimonials • Allegedly issued a manual to franchisees on how to post fake reviews • Provided ‘template’ reviews • Asked that mobile phones be used so that IP addresses would be different • ACCC alleges: – Electrodry made false or misleading representations through the contractor – Electrodry induced or attempted to induce its franchisees to make false or misleading representations 25
Online testimonials • Potential risk management strategies for franchisors: – Adjusting settings of social media accounts – Proactive monitoring of social media – Clear ‘digital standards’ policy – Contractual take-down powers – Breach notices for a breach of digital standards policies – Tightening of definition of ‘advertising’ and ‘promotion’ to cover social media – Contractual obligations on franchisees to monitor social media – Franchisee training as to risks of social media/online testimonials 26
Online testimonials • ACCC guidelines: What you need to know about online reviews – a guide for businesses and review platforms • Key points in franchising context: • Avoid encouraging friends and family to write reviews without disclosing the connection • Avoid soliciting others to write reviews when these people have not actually used the relevant product or service • Avoid offering incentives for positive reviews • Always disclose commercial relationships • Avoid selective editing of reviews • Useful tool for franchisee training 27
Native advertising/ blogger issues • What is native advertising? • Examples – “sponsored” tweets – bloggers as brand ambassadors – incentivising consumers to make posts (eg. in context of competitions) • Increasingly valuable marketing tool 28
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