In KFC Nat’l Council & Adver. Coop., Inc. v. KFC Corp., No. 5191-VCS, 2011 Del. Ch. LEXIS 17 (Del. Ch. Jan. 31, 2011), the parties disputed the role of the KFC National Council and Advertising Cooperative (‘NCAC’).
KFC established the NCAC to oversee advertising for the KFC brand throughout the United States and approve specific KFC advertisements. The NCAC is funded by mandatory contributions from franchisees. Thirteen franchisee representatives and four franchisor representatives make up the governing body of the NCAC.
In this case, KFC claimed it had sole authority to develop advertising plans for the brand, and the NCAC could only accept or reject a proposed plan. The franchisees, on the other hand, argued that NCAC could accept, reject, or modify advertising plans presented. In a lengthy opinion, the court awarded the franchisees a declaratory judgment confirming the NCAC’s ability to make amendments to proposed advertising plans.
The court did credit KFC’s argument that the need for a cohesive global advertising strategy dictated that it should have sole control over the advertising plans for the United States. However, in making its decision, the court highlighted the NCAC’s historical practice of making amendments to the advertising plans and ultimately decided in favor of the franchisees.
Carl Zwisler, IDI franchising country expert for U.S.A., Kelly Hoversten and Maisa Jean Frank.
