Is a pizza a pizza a pizza? Little Caesars fight digs into question
Franchisee James Fischer of Sioux Falls, South Dakota, has fought legal battles before with Little Caesar Enterprises, the Michigan-based pizza company. And he’s lost big in court in the past.
But he finally won a round in August when a U.S. District Court judge in South Dakota denied a request from Little Caesars for a temporary restraining order.
Little Caesars wanted to stop Fischer from creating and selling what the company calls its “Hot-N-Ready” pizza. The court also refused to order Fischer to change the trade-dress or appearance of his new independent restaurant called Pizza Patrol.
Chief Judge Karen Schreier said Little Caesars failed to demonstrate its system of preparing these types of pizzas was a protectable trade secret, and that its case was unlikely to succeed if it proceeds.
More steps ahead
This might be just a first step, however, in new efforts by Little Caesars to put Fischer out of business. Attorney Gregg Rubenstein, a partner at Nixon Peabody in Boston, who represented the franchisor, said he is “disappointed in the ruling and disagrees with the judge’s analysis.”
“Our client intends to pursue in this case of trade secret misappropriation” he stated.
Fischer is not surprised: “They’re just trying to $20,000-to-$30,000-me-to-death, and we just keep trying to do what we have to do to make a living.”
Fischer’s attorney is warning other franchisees to think about the end before signing a franchise agreement. “Hopefully, you’ll be in business for a while, but franchising is a risky business. You could be in the business for a very short time,” said Shawn Nichols of Cadwell, Sanford, Deibert & Garry.
The judge’s action does give some measure of comfort to franchisees who want to stay in business after being terminated by a franchisor or giving up their franchise.
“It reminded me of a similar case I once had,” said attorney Eric Karp, partner in Witmer, Karp, Warner & Ryan in Boston. “My client had an oil-change franchise and when it ended, the franchisor sought an injunction against him in a similar way. We won because we convinced the judge that an oil change is an oil change. There’s nothing secret or unique about it. The same thing is true with pizza: A pizza is a pizza is a pizza.”
A system of preparing pizzas, Karp argued, is just a conglomeration of information that’s in the public’s knowledge, but that someone has aggregated into what they call a system. “The case reeks of failures by Little Caesars to prove anything unique or secret about the process,” he said.
System called vital
In suing Fischer, Little Caesars told the court that Fischer was still using a vital company system that they owned. The system includes, for example, how much pepperoni pizza, cheese pizza, crazy bread and chicken wings the franchisee should prepare during the day and when each component of the preparation process should occur. It also has a method for calculating specific preparation requirements based on each franchise location.
The company told the court that without the system and the specifics as to how to let the dough rise, how to apply sauce and toppings, and how to cook and store the pizza, a restaurant simply could not operate profitably in an all-day, every day, ready-for-pickup pizza market.
But Fischer’s attorney Nichols notes that when Little Caesars terminated Fischer’s franchise in June 2012, his client reviewed his franchise agreement carefully to ensure he would not run afoul of any non-compete and confidentiality clauses by staying in the food business. “He also was careful to change the appearance of the building, by changing everything from the tile on the floor to the color scheme and the signage,” Nichols said. Fischer, who owns the building where the restaurant is located, spent two weeks on the changes before reopening as Pizza Patrol.
But that’s just one of the two entities’ battles.
Who coined the phrase?
Fischer signed his first deal with Little Caesars in 1991 and grew it to three units. But the relationship has never been harmonious. Arguments over the phrase “Hot-N-Ready” pizza were disputed in court in 2009 and 2010. At that time, Fischer, who operated his franchises under the corporate name Pinnacle Pizza Co., filed suit against Little Caesars, over a dispute about who really owned the “Hot-N-Ready” trademark.
According to court documents, Fischer claimed he coined the phrase, which he spelled “Hot N’ Ready,” after being inspired at a Little Caesars convention in Last Vegas.
He told the court that both Little Caesars and his company Pinnacle had been struggling in the 1990s. In response, he began a new advertising strategy that guaranteed customers a hot, medium pepperoni pizza for $4 within five minutes of ordering every Tuesday. He claims he first advertised this offer in a May 1997 newspaper ad, and the promotion was immediately successful. He said he shared his idea with his fellow franchisees.
Little Caesars, however, argued at that time that the parent company had been running similar promotions beginning in 1992, and that Fischer adapted these sales presentations as well as those of other franchisees to craft his own campaign.
In 1999 Little Caesars started using the phrase, spelling it “Hot-N-Ready,” received buy-in from other franchisees, and then sought a federal trademark for the slogan in 2002. In getting this trademark, Fischer argued the company had violated terms of his franchise agreement. He also claimed the program was so successful that Little Caesars went from a company loaded with debt to one with $200 million in assets.
Fischer’s main argument was based on a section of the franchise agreement that stated: “Little Caesars may not use the original advertising materials created by Franchise Owner without its prior written consent.”
But the U.S. District Court in 2010 ruled against Fischer and so did judges on the Eighth Circuit Court of Appeals.
After that rocky history, it was probably inevitable that franchisor and franchisee would split, and two years later, Little Caesars did not renew the franchises that Fischer had on three stores in Sioux Falls.
After Pizza Patrol opened, Little Caesars personnel visited the new restaurant to take pictures of the décor, the ordering counter and general layout —all of which they contend copied the old features of the Little Caesar franchise. Those photos became part of the new lawsuit.
It’s hard to determine whether the resulting lawsuit would have happened if Fischer had not filed suit earlier.
His attorney advises franchisees to get advice about leaving before signing on. “See what the agreement says about confidentiality and competition. Be aware from the get-go and discuss terminology with an attorney regarding lawful and unlawful competition,” Nichols said.