So you are the chef/owner or financial backer of a trendy gastropub. Your restaurant has been in business for five years, overcoming the industry’s historically high failure rate, and you have managed to achieve financial growth, attract a loyal clientele and draw attention within the restaurant community. You want to harness this momentum and expand but are wary of committing common missteps and ruining a good thing. It’s important to remember that when building a business empire, you must engage in comprehensive brand development and take proactive steps to protect the business from a legal standpoint.
Restaurant owners seeking to open new locations or spinoffs of an existing restaurant must finely tune the concept. This includes narrowly tailoring the targeted demographic, price points, decor, theme and any notable features to differentiate your restaurant and brand from the competition. You may serve out-of-this-world bison burgers, but as you expand and develop the brand, details matter more. You must take into account microgeographic concerns to ensure consistency among locations, guarantee brand recognition, live up to your existing reputation and steadily amass patrons. Do you have an organic, all-natural burger bistro geared toward health-conscious locavores? Do you have a fast-casual burger joint with wi-fi catering to price-conscious students and freelancers? Or do you have an upscale burger and wine lounge that appeals to white-collar professionals? Defining the brand and honing in on your targeted clientele are crucial to a successful expansion. In today’s digital age, owners should also determine how best to use social media to their advantage, be it having celebrities tweet about the restaurant (or, even better, the anticipated expansion), targeting pop-up advertisements to the desired demographic or encouraging guests to post Instagram photos showing your ambiance or food.
From a legal perspective, restaurant owners should consider these four steps to protect the concept.
1. Chefs and other partners should clearly define their respective ownership interests before pursuing expansion.
When opening the initial restaurant, the chef may have only secured a proprietary interest in the recipes he/she brought to the table at the time, while the investor, assuming financial risk, may have secured full ownership of the establishment. However, if the chef and investor seek to open additional restaurants and build the brand together, the relationship dynamics may shift. To avoid legal turbulence, ownership interests should be concretely defined.
2. Owners should make sure the restaurant, any spinoffs and all related intellectual property are held in the name of a separate corporate entity.
No individuals should hold the restaurant or the restaurant’s intellectual property in their personal names. Why is this important? Restaurants are sued all the time. By creating a separate corporate entity to own the restaurant and intellectual property, the suing party will be limited to the restaurant’s assets and not any individual owner’s personal assets. As a restaurant and brand expand, the likelihood and frequency of being sued will only increase.
3. Owners should be sure to file trademark and copyright applications, as appropriate.
Trademarks can protect a restaurant’s name as well as the name of a signature dish, slogan or symbol. Restaurant owners should also seek to protect trade dress, which can include floor plans, decor, concepts and signature dishes. In terms of copyrighting, recipes that merely contain ingredients cannot be copyrighted. But recipes with directions and extensive descriptions, as well as menus and marketing or business strategy materials, may be protected by copyrights. Even though these materials are copyrighted when written down, for added protection, they can be registered with the U.S. Copyright Office.
4. Owners should prepare highly detailed agreements for any potential with licensees, employees, vendors and other third parties.
Owners should carefully consider the nature of the expansion (e.g. joint ventures, franchises and management deals) and accordingly vet all licensees, partners and management personnel to ensure each has sufficient experience running a restaurant of the same caliber. License agreements should establish ground rules for a licensee’s ability to use the restaurant name and brand, specifying everything from the targeted audience and menu price points to the decor and geographic location of any new restaurants. Owners can use these agreements to ensure their right to inspect the licensee’s establishment and revoke the license for failure to uphold the brand’s standards. Work-for-hire agreements with non-owner chefs and kitchen staff should specify that all recipes created during the course of employment are the property of the restaurant. Confidentiality agreements with employees and vendors should protect trade secrets such as business strategies.
Expansion and brand development are never easy. But taking these steps could mean the difference between sitting on a multimillion-dollar enterprise and sitting on restaurant rubble.
Bruce Bronster is a partner in the NYC office of Windels Marx Lane & Mittendorf, where he represents prominent restaurant developers, hotels, investors, purveyors and many hospitality interests in myriad legal matters. His associate Kelly Schneid cowrote this article.