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KFC Franchisees Ad Council Receives Favorable Ruling Over KFC Corp.

The KFC advertising council can claim victory over franchisor KFC, regarding the final approval and control of domestic advertising programs. Read a summary of the case and ruling.

A Delaware court has ruled in favor of the KFC National Council and Advertising Cooperative, Inc. the “NCAC” in a lawsuit brought against KFC by the NCAC. The case was decided on January 31, 2011.

The NCAC is a Delaware corporation funded by a mandatory contribution of 3% of total sales from every domestic KFC store. It has an annual budget of approximately $150 million. The majority of that budget is used to purchase national advertising for the KFC brand.

The franchisees’ position was that although KFC must play a lead role in developing and implementing the NCAC advertising program this activity is accomplished by providing NCAC input on program development and implementation. The NCAC Committee took the position that it has the ultimate authority to determine the elements of the advertising program. KFC took the opposite view that it’s expertise and ownership of the KFC brand gives it the ability to block any advertising program proposed by the NCAC Committee that it does not support.

The dispute, over which entity has the ultimate authority, came to a head with the introduction of the Kentucky Grilled Chicken program in 2009 under Roger Eaton the new KFC President.

By July, 2009, sales had started to decline and the franchisees began to grow restless. According to the case summary: “The tension over Grilled Chicken was not the only issue dividing the franchisee members of the Committee and KFCC. Eaton became frustrated with what he viewed as the cumbersome bureaucracy of the NCAC and in particular its subcommittee structure. Eaton viewed that unwieldy subcommittee structure as an obstacle to the agile and efficient decision-making necessary to develop, implement, and adapt an effective advertising plan in the competitive fast food restaurant industry Eaton was frustrated by the fact that KFCC needed to make repetitive presentations to multiple subcommittees that often had overlapping membership.”

After several attempts to resolve certain issues the NCAC filed a lawsuit against KFC on January 7, 2010.

The Court ruled that the NCAC has the authority to adopt the advertising program of the NCAC by majority rule, and to include in that program, amendments to KFC’s proposals approved by a majority of the Committee. The NCAC’s adopted program will necessarily provide guidance to KFC on what products to feature in the creative advertising process and when, and KFC has a duty to implement that plan in good faith.

This ruling affirms the authority and rights of the KFC National Council and Advertising Cooperative.

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