1. Jon A. Neiditz (Lord Bissell & Brook LLP) examines the privacy
conundrum presented by the collision between worklife, private
life and the Internet (Free Download)
2. Philip F. Zeidman (DLA Piper Rudnick Gray Cary) explains what
makes that store down the street into a franchise
Coming up next week: Adonis Hoffman (American Association of
Advertising Agencies; senior fellow, Capitol Policy Institute);
Erica Bell (Weiss Buell & Bell)
1. Jon A. Neiditz: Information security in the workplace may get
worse before it gets better
PLI: Recent news seems to reflect an increase in the incidence of
workplace privacy breaches in terms of informational security, despite
both policy and technology advances meant to secure the electronic
workplace. What gives and who is to blame?
JON A. NEIDITZ: The American workplace is not a trusting place, and
is not likely to become one soon, but it is trying to become secure.
Enron of course brought national regulation attempting to restore
trust in the financial markets. Fears of identity theft brought new
regulation of the credit bureaus in 2003, and it is hard to believe
at this date that ChoicePoint will not bring us broader national
regulation attempting to restore trust in the commercial uses of
personal information. There is no comparable national movement,
however, to restore employee trust in employer uses of their
information, or employer trust in employees.
The privacy and security of personal information in the U.S. workplace
is problematic because (1) employers and employees are each persuaded
to be secretive about the ways in which such information is acquired,
used and disclosed, and (2) U.S. law draws a clear but anachronistic
distinction between working life, in which the employee has virtually
no privacy rights, particularly on-line, and life at home, in which
the employee has considerable privacy rights. Thus employer policies
and the realities of the working life often bear little relationship
to one another, making collisions likely.
Employer policies on email and internet usage are good examples of
the gulf between policy and reality. The general advice from U.S.
lawyers has been to reduce the reasonable expectation of privacy
through prohibiting the use of employer-provided email and internet
for anything but work-related purposes. This advice is a
straightforward reading of the case law and creates the defenses it
is intended to create, but its distance from reality can be
problematic.
Every day and night that employees use their company-sponsored
internet and email, they are enveloped in attractive worlds designed
by marketing minds to say, "It is safe here; you have control over
your information." Our hours in the workplace have grown longer, of
course, requiring us to take care of personal business at work, but
the workplace is not the only place at which we work. Laptops, Citrix,
Blackberries, all technology appears designed to blur the boundary
between work and personal life. Encouraging telecommuting is a
necessary part of transportation policy in many places and cost
management in many firms, and "hotelling" turned many organizations
into hordes of laptop-toting nomads whose work lives are almost always
with them. So employees live their lives on employer-provided internet
connections, shopping, conversing and generally behaving as people do
on the internet.
A certain percentage of employees go even further. Tens of spam
invitations appear in everybody's in-boxes or spam blockers everyday,
and 70% of identity thefts are reportedly committed by co-workers.
Because so much internet usage is done on employer servers, casual
online crimes will be often done on employer servers. Online gambling,
copyright infringement, illegal pornography and prescription drugsnew spam invitations appear daily.
To be sure, there is a company policy that employees have read once,
if at all, that says that the internet and email are only to be used
for work-related purposes or, better, there are click-through messages
that employees read whenever they turn on their computers that
describe in considerably more detail how company-owned email systems
and internet connections are to be used. But although the great
majority of employers monitor the emails and internet usage of their
employees, how many employees are ever punished for violation of
company policies against personal email or internet use? One Chief
Security Officer recently told me that 70% of his company's internet
use is for employee shopping. This discontinuity between policy and
reality is reenacted every day. What is the impact of such a daily
reenactment of policy violations on the employer's ability to
establish relationships on integrity and trust in the workplace?
And where can U.S. law's rigid distinction between the privacy rights
of employees at home and in the workplace take us when the line
between home and the workplace washes away for more and more employees
every year, as information security becomes more and more of an issue?
Inevitably, there is no information security if workers maintain
privacy rights while working at home, and living without information
security is as intolerable as sacrificing the privacy of our homes.
Thus workforce privacy is and will remain controversial and unstable
for some time.
2. Philip F. Zeidman: If you don't watch out, you may just become
an accidental franchise
PLI: People, even lawyers, tend to use the term franchise independent
of its actual legal meaning, perhaps because of the myriad state and
federal laws on the subject. So what makes a franchise?
PHILIP F. ZEIDMAN: Despite the apparent hodgepodge pattern of laws,
there are some basic principals that are the same, and at the risk of
oversimplifying, I think we can distill those principals. There are
essentially three elements that make a license or a dealership or a
distributorship into a "franchise."
One of those is what we might call the "trademark" prong. That's one
that says if I'm giving a license to someone, that in order for it to
be a franchise, it has to be me granting the right to that person to
use a name or a mark or a symbol or some other form of intellectual
property that I own and that, without my permission, he couldn't use.
But it actually goes beyond that. It actually says that I don't even
have to give him the permission; actually to keep it out of the
definition, I have to prevent him from using it. But as a practical
matter, it's almost impossible to avoid the so-called trademark prong
if you are selling goods or services through independent, intermediary
parties who are using the name that you own in the process of doing so.
We can pretty well set that aside.
Let's turn now to the second one, which is somewhat more amorphous.
And it's more amorphous because it differs somewhat between different
states and between state and federal law. But for present purposes,
we'll use the federal approach, which is sometimes called the "control"
or "assistance" provision. And that says that in addition to granting
a person the right to do business using a name or a mark which I own,
I'm going to do something more. And the something more can be either
of two things: I could either exercise control over what he does in
some fashion or I could provide assistance to him in some fashion.
Now if you go back and read the Federal Trade Commission's Statement
of Bases & Purposes, you will find that in fact, it is very easy to
meet this definition. The issue of control has to do with such things
as how's the place going to look; what time is it going to open; do I
have any control over the location; do I have any control over
operating business hours. The most minimal sorts of control that go
beyond a bare and naked license are likely to meet that definition.
On the assistance side, if I do something to help himto give him
training, to give him point of purchase material, to make it easier
for him to compete more effectively (this is very counterintuitive;
what we learn in the antitrust law is those are exactly the things I
ought to want to do. I ought to want to do things like this to make
him a more effective interbrand competitor. But despite the fact that
from the standpoint of competition, that is what I ought to do, it's
either one of those two things that are going to meet that
definition.)
That leaves us with the third and final definition, which I've left
for the end for a good reason. Almost everyone meets the first and
second prongs. It's the third that, if at all, is going to get you
out from this definition. And the third has to do with the flow of
money from the person to me, which is sometimes referred by people
as the "franchise fee" element. That's a terrible misnomer because
it's not what the law says. The law doesn't say a "franchise fee."
It says a "required payment." And if the person with whom I am doing
business, under our arrangement, is required to make a payment to meand it can be required in either of two ways: by contract or by
the nature of the business, that is to say that as a practical matter,
he can't operate unless he pays me some money. And unless that money,
in its entirety (there are a few de minimus exceptions to this, but
for present purposes, I'll say in its entirety) can be characterized
as:
We've met the third definition.
Now let's look at all the ways in which you can get in trouble under
that. First of all, who's to say what is a "reasonable quantity?"
There are many cases with people essentially having forced more
purchases as an indirect way of getting additional payment. Second,
if it's not for goods in its entirety, if it's for anything else
point of purchase advertising, training materials, contribution to
some fundwhatever it is, as soon as they pay a dollar to me that
doesn't fall under that category of "goods," that's it. The goods
have to be "for resale." So if you have a case where they will have
13 pieces of equipment on their premises, only 12 of which are for
sale and one of which is a demonstrator, right away, they've paid me
for something that is not for resale. Finally, "at a bona fide
wholesale price," and I, the franchisor, have the burden of defending
this. I've got to prove that the price that I charged was no more
than a bona fide wholesale pricethat's very difficult for me to
do because to demonstrate that something is bona fide wholesale, I've
got to lay it beside something else. And the very definition of
franchising in many cases is that there is no other channel through
which those goods get to the public. So in many cases, I'm going to
have great difficulty in demonstrating that what I was selling was at
a bona fide wholesale price. In short, this country is full of
franchisors that didn't intend to be, didn't know they were, didn't
plan to be, didn't think they needed to be, but in fact meet the
definition of being a franchise.