Franchising and virtual reality and augmented reality – what legal issues you need to be considering now

by Dentons
Contact

Dentons

With predictions that Virtual Reality arcades may be a new trend.1, the time has come for franchisors to seriously consider the impact on franchising of the growth in Virtual Reality (VR) and Augmented Reality (AR). Although the developments are exciting, legal issues abound and VR and AR strategies for franchising need to be thought through carefully. This article aims to provide you with an overview of the VR and AR in franchising and set out some of the complexities.

What is virtual reality and augmented reality?

VR is an artificial software-created virtual environment which users see through a head mounted device. They see displays presented in such an immersive way that it is easy to accept them as real.

By contrast, AR supplements the real world. The user sees the real world on a device, such as a tablet or mobile phone, but with the addition of computer generated images which are overlaid onto various real objects. Augmentations can be sound, video, graphics or data. AR achieves this by adding computer vision and object recognition to data about the real environment surrounding the user. AR presents that content overlaid onto the user's real world.

How are franchise systems now exploiting AR and VR technology?

There are an increasing number of franchised brands who are capitalising on opportunities to exploit this new technology. Notable examples of VR and AR being used in franchised business are the following.

  1. McDonald's launched an AR app that showed the production process of its food. Additionally, in Sweden, McDonald’s released their own version of the Google Cardboard turning the Happy Meal Box into a McDonald’s Cardboard VR Headset. Customers could play a game on their phones called Slope Stars and McDonald’s gained another promotion opportunity.
  2. Häagen-Dazs uses AR to entertain consumers while they wait for their icecream to become soft enough to scoop. A virtual violin concerto is projected onto the top of a tub of icecream.
  3. Marriott uses VR to showcase its hotels to potential guests.
  4. A hairdressing franchise in Australia, Just Cuts, has introduced a VR Kiosk Salon.
  5. A VR arcade pilot has been run for The VOID’s VR theme park in Utah, USA.

It is inevitable that franchise systems will need to embrace AR and VR as part of their brand strategies – not just for use in franchise training but also for use in franchise marketing, franchisee induction and employee initiation and outlet design.  Three dimensional displays allow customers or franchisees to immerse themselves in the brand – whether as part of franchisee assessment or part of customer engagement in the brand experience at an in-depth level. Franchisors are also maximising other efficiency opportunities such as using VR to design and assess retail locations.

The success of the AR game, Pokémon-Go, last year paved the way for these early adopters. Franchises have now embraced VR and AR as an opportunity to attract increased footfall into their outlets. Franchises initially capitalised on the Pokémon-Go craze by using the Pokéstop feature of the game (locations where gamers collect items) and marketing the fact that they were near those locations or others where game characters could be "collected". Additionally, franchises were paying to locate a "lure" near their premises (which brings a Pokémon character to a location) or were sponsoring such locations. McDonald's, for instance, entered into such a sponsorship deal when Pokémon-Go launched in Japan.

Legal issues associated with VR and AR and franchising

However, franchisors and franchisees need to consider some of the legal issues which are associated with this new and exciting technology.

Real world IP rights in the virtual world

Consider, for example, who might own the intellectual property rights in a virtual T-shirt with a favourite brand's logo on it which is created by the user for their avatar to wear online? Franchise agreements need to deal with VR and AR intellectual property which is created in virtual settings.

Trade mark rights also need to be considered – there is a difference between virtual world goods and real world goods. Franchisors may find the scope of their trade mark rights cover only real goods which may not be adequate for the franchise business.

Virtual IP rights in the real world

Another issue to be considered by franchisors is who owns rights to geo-tag real world locations such as a franchised premises. An owner of a famous landmark or flagship store may well want to claim rights as to how that landmark is to be identified or have a grievance if false information is given about it.

It should be borne in mind that VR facilitates the creation of very personal virtual worlds by the user. Users can create different identities and an alternate world which can be very novel. Franchisors, in developing their interactive platforms, need to be clear about the ownership of any IP created via their VR / AR technology in terms of its agreements with its franchisees and then the use agreements with users. This is particularly so as the deeply personal nature of virtual experiences leads many users to strongly identify with their virtual world.

Virtual liability

Usually, under the franchise agreement, the franchised business is responsible for injuries or trespass associated with the use of VR / AR technology. This becomes more significant if customers or users can interact with each other. Could they threaten or hurt each other? Franchisors need to consider if their VR / AR applications encourage trespass onto private land or some other illegality and ensure that their terms of use disclaim the VR / AR platform's liability. Will more need to be done in particular circumstances to avoid liability? Last year, there were reports of distracted gamers walking in front of vehicles to catch Pokémon characters or mobile phones being stolen while gamers were in unsafe locations to which they were encouraged to travel when playing the game. At the minimum, franchisors should require their franchisees to incorporate appropriate warnings and health and safety notices and police virtual locations and act on any trouble spots.

Royalties on virtual sales and restrictions on virtual locations

Another issue to consider is whether the franchise agreement adequately deals with the virtual opportunities.

  • Does the franchise agreement, for example, consider whether royalties are payable for virtual sales made by franchisees to customers using digital currencies that would have no value to a third party in the real world?
  • Does the franchise agreement provision for virtual locations, such as franchised business being located in a virtual mall?
  • How are rights allocated in the franchise agreement relating to the geo-tagging for any particular premises – and what will happen to the geo-tagging data once the franchise brand no longer occupies that location?

Conclusion

In summary, many franchisors, particularly in the retail space, are developing their virtual strategies. VR and AR looks set to grow strongly and its future in franchise systems is inevitable.


1. See "Are Virtual Reality Arcades Becoming A Trend?" dated 23 June 2016 by Jonathan Nafarrete in VR Scout.

Written by:

Dentons
Contact
more
less

Dentons on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!