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•Where, however, the purpose of the license is to raise revenue (income for the government)
and is unrelated to protection of the public, the ability of a business lacking the license to
enforce its contracts will not be affected.
❊Revocation or suspension of a license.
■As we have discussed, a license is a privilege, not a right. A licensee must establish it is worthy of
the license; there is no automatic entitlement to it.
■Cause for revocation or suspension.
■Due process.
•The licensee is entitled to due process, the right not to be deprived of property (including a
license) without a fair hearing.
•In the notice, the licensee is entitled to information identifying the specific conduct attribut-
able to him that allegedly violates the rules relating to the license. The reason for this
requirement is to provide sufficient information to enable the licensee to address the allega-
tions and prepare a defense. Clearly, a notice of revocation that does not state the grounds is
not sufficiently specific.
•To satisfy due process rights, not only the notice of the grounds for revocation, but also the
date of the hearing, must be given by the licensee far enough in advance to enable the licensee
to prepare a defense.
•Where a licensee receives a notice to appear before the licensing board and believes the notice
is inadequate, the licensee should request additional information concerning the charges or
additional time to prepare a defense, as the case may be. Failure to object may result in a waiver
of any due process defects in the notice.
■Decision based on record.
•Due process requires that decisions concerning a business’s license be made based exclusively
on evidence presented on the record at the hearing.
•Due process would be violated if members of a city council, while deciding whether to revoke
a restaurant license, considered information not presented at the hearing and made up their
minds before the hearing was completed. If these circumstances were proven, the due process
violations would require a new hearing on the issue of the license revocation.
❊Zoning.
■For example, a zoning ordinance may do the following.
•Limit the use of property to residential purposes and preclude commercial and industrial uses.
•Provide a maximum height for a building (for example, five stories).
•Restrict the size and type of sign a business can display on its property to advertise its service.
■Zoning laws may ban development of the business.
•Before any resources are committed to a new business, the owner should investigate the
applicable zoning restrictions.
G. Answers to Case Example Questions
15-1-1. Explain what the court meant when it said in the 16th paragraph, “Any doubts as to
confusion are to be decided against the newcomer. . . .”
15-1-2. Explain what the court meant when it said in the 18th paragraph, “Although names
are not identical, similarity will deceive almost as much as precise identity. Nice and
careful discrimination between the names cannot be expected from a busy public.”
The required element of likelihood of confusion can be proven by showing actual confusion;
While actual confusion is not essential, it provides the court or jury with positive proof of
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15-1-3. Why is the right to operate a business using one’s own name not unlimited?
15-4-1. Do you think enhanced damages are fair? Why or why not?
15-5-1. Why was the court concerned that the amount of damages be viewed by the defendant
as “sufficiently punitive”?
15-7-1. In what way does a group boycott such as the one in this case restrict competition?
By refusing to deal with those suppliers that decline to donate to the association, the hotels
reduce the number of suppliers with whom they can transact business. This is true even if
15-7-2. Why was the hotel liable for the conduct of an employee who was acting contrary to his
supervisor’s directives?
Making the employer liable in such circumstances furthers Congress’s objective of motivating
15-9-1. Explain what the court meant when it said, “Plaintiffs must purchase products from
Domino’s Pizza not because of Domino’s market power . . . but because they are bound
by contract to do so.” What effect did this statement have on the decision?
The courts meant that a special justification existed for the tying arrangement. The plaintiff’s
acceptance of the franchise package and the contractual agreements were consistent with the
The statement supported the basis of the decision in that the court considered the agree-
15-10-1. Can a motel that is the only inn within a 25-mile radius charge whatever rates it chooses?
Why or why not?
A motel that is 25 miles from the next closest motel must offer reasonable rates to its guests
15-11-1. Why would the City of Texarkana want to ensure that a hotel or boarding house owner
would not permit gambling, prostitution, and other illegal activities on the premises?
15-11-2. What evidence do you think was presented to convince the city council that Hertenberger
would have permitted immoral activity at her hotel?
Presumably, she had been recently convicted of illegal activity, probably prostitution, based on
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15-13. Why are safety violations relevant to the renewal of a liquor license?
An establishment that has a liquor license is, in many respects, a quasi-public place. A relatively
large number of people are on the premises. Government, under its police power, by licens-
Key Terms
American Society of Composers, Authors, and
Publishers This association collects copyright fees
for its members and licenses to facilities on a non-
Antitrust laws Laws that attempt to ensure to
Broadcast Music Incorporated Licenses to facilities
Copyright The exclusive right of a creator or other
copyright owner to reproduce and license (authorize)
Due process The right not to be deprived of life,
Exclusive dealing contracts Agreements in which
Franchisee The party who receives the right to use
Franchisor The owner of a trademark, service mark,
or copyright who has licensed another to use it in con-
Group boycott Agreement among competitors to
sell goods at and not below a certain price.
Merger Transaction in which two businesses are com-
Monopoly Condition in which one firm controls
Per se violations (of antitrust laws) Activities that
Police power The power of government to adopt
Price-fixing agreements A combination formed for
Resale price maintenance agreement Contract
Territorial restriction Restriction imposed by a
Trademark Any word, name, symbol, or device
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182 ■Chapter 15
H. Answers to End-of-Chapter Questions
❊Review Questions
1. What interest does a city have in requiring a hotel to maintain a register containing
guests’ names, addresses, types of car, and license plate numbers?
The city’s interest in the register is based on the register’s use in criminal investigations and
2. What is the objective of the antitrust laws?
3. Name and define three examples of per se violations of the antitrust laws.
4. Name and define three examples of antitrust violations subject to the rule of reason.
5. Must a business register its name to obtain trademark protection? If not, how else is
protection obtained?
6. What constitutes a trademark infringement?
7. What is a franchise?
8. What information must a franchisor disclose to a franchisee?
At least ten days before accepting any money from a franchisee, the franchisor must disclose
some or all of the following, depending on state law: (l) the name and address of the fran-
chisor, (2) the business experience of persons affiliated with the franchisor, (3) whether any
such person has been convicted of a felony, (4) the length of time the franchisor has conducted
identify its goods and distinguish them from goods
sold or manufactured by others (such as McDonalds’s
Vertical price fixing An illegal agreement to
maintain prices between producers and wholesalers
Zoning The process by which local governments
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Regulation and Licensing ■183
9. What is a copyright? Give three examples of works that can be copyrighted.
A copyright is the exclusive right to reproduce and license the reproduction of the following
10. What are the objectives of recycling laws?
11. What is the purpose of zoning laws?
The purpose of zoning laws is to achieve balanced development, preserve the residential qual-
12. If zoning laws negatively impact you, what remedy can you seek?
You can request a variance, which is permission from the local government to deviate from the
13. What is the basis for the government’s authority to require hotels and restaurants to
obtain a license before opening for business?
The government’s authority to mandate licenses is derived from its power to protect the public
14. What penalties can be imposed on a business that operates without the necessary licenses?
15. Name five things that a health department will look at when inspecting the restaurant.
The health department will look at how employers receive, process, and store food; the tem-
peratures at which food is cooked, held, and reheated; washing procedures for food and dishes;
16. If the government wants to revoke a liquor license, what rights, if any, does the licensee
have?
The licensee has the right to due process, which means that, before the license can be revoked,
❊Discussion Questions
1. What is the policy reason behind the requirement that licensees must be given due
process rights before a license can be revoked?
A licensee cannot carry on the business or trade without the license. Although the license is
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2. What due process rights does a licensee have?
3. Why are some violations of the antitrust laws subject to the rule of reason while others
are violations per se?
Some violations are so contrary to the concept of free competition that they are never legal.
4. What governmental objective of a locality would be fulfilled by a county zoning law that
limits the size of business signs?
5. Buy a soda and look at the can. How many copyright and trademark notices do you see?
What aspect of the soda can is copyrighted?
Virtually all cans have at least one trademark notice for the name of the drink (e.g., Coke or
6. Xerox Corporation, known for its copiers and other office machines, has expressed
concern that it may lose its trademark on the name Xerox. Indeed, it has advertised
in various trade journals that Xerox has two “R’s” in it. Why is the trademark
in jeopardy, and what is meant when the company says there are two “R’s” in
Xerox?
If a company’s name is used by the public to denote the product and not the trademark, the
word will be considered to be in the public domain, and the company’s exclusive right to it
7. In what ways do the disclosure requirements imposed on franchisors help franchisees to
avoid becoming victims of dishonest franchisors?
The disclosure requirements mandate that franchisors provide specified, accurate informa-
tion to franchisees at least 10 days prior to accepting money from a franchisee. This dis-
❊Application Questions
1. Sharina is a franchisee of Burger King. She has an exclusive territory with a five-mile
radius in which Burger King cannot authorize anyone else to open a Burger King
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Regulation and Licensing ■185
restaurant. Why is she fortunate to have this? Does this agreement violate the antitrust
laws? Why or why not?
Sharina’s exclusive territory does not violate the antitrust laws. Territorial restrictions are sub-
ject to the rule of reason. In analyzing whether a territorial restriction is legal or illegal, the
constitutes a special justification for the restriction.
2. You are licensed to operate a hotel in a summer tourist area. You receive a notice from
the town council, which has the authority to issue and revoke licenses, that your license
may be revoked because of illegal activity occurring at your hotel. What rights do you
have concerning the revocation proceeding? What action should you take in response to
this notice? What will happen if you take no action?
A licensee has the right to due process with respect to the threatened revocation. This means
that, before the town can revoke the license, it must hold a hearing at which it must present
3. Tamika opened a restaurant in California and named it “The Best in the West.” The na-
tionwide hotel chain of Best Western brought a trademark action against Tamika. What
factors will the judge consider in deciding whether or not Tamika has violated the Best
Western trademark? How would you rule on the issue? Why?
The major factors that the court will consider is whether the defendant’s name is likely to cause
Here, we are dealing with two different types of establishments—a hotel and a restaurant.
The services offered are separate but distinct—lodging and food. Arguably, one may go to a
Although the defendant’s artful use of the name may infringe on the plaintiff’s trade-
4. Samantha bought a taco at a Mexican food franchise restaurant. When she bit into the
food, she discovered a piece of glass in it. The glass injured her gums. What additional in-
formation would you need to know to determine if the franchisor is liable to Samantha
for her injuries? Why is this information needed?
You would need to know the degree of control exercised by the franchisor over the fran-
Samantha’s attorney would investigate the exact nature of the relationship between the
franchisor and the franchisee. If it was found that the franchisor was so closely involved in the
5. Joshua Sears has decided to develop a franchised chain of bars to be called Sears’s Cheers
and Beers. The well-known department store is disturbed that its name will be used in
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conjunction with a bar. Sears Roebuck & Company thus has commenced a trademark
action against Joshua. What is the department store’s likelihood of success and why?
The department store has a good chance of success because of the ownership of a distinctive
However, the department store will not be successful because the two businesses are sig-
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