Business Law III
Fall/Winter, 2 0 1 3 BCJ 19
Society for Case Research
THE FRffiD PICKLE EIGHT
S. Catherine Anderson, Queens University of Charlotte Miranda Reynolds, Innovasource and McCoU School MBA
Christian C. Melvin, Student MBA Program McColl School MBA Amanda LaNeith Cash, McColl School MBA Program
77iii case was prepared by the authors and is intended to be used as a basis for class discussion. The views presented here are those of the authors based on their professional judgment and do not necessarily reflect the views of the Society for Case Research. Copyright © 2013 by the Society for Case Research and the authors. No part of this work may be reproduced or used in any form or by any means without the written permission of the Society for Case Research.
October 24, 2010 marked a culinary crossroads for Charlotte, North Carolina. Penguingate, as it had been dubbed on Twitter, was coming to an end and regulars of the Penguin Drive-In restaurant gathered to say farewell to what they knew as their local hang-out. The next day, the doors would be closed and a new chapter would begin for the historic restaurant as well as its proprietors.
How, though, did a property that started out as an ice cream shop become the center of a media firestorm and lead to the splintering of fiiendships, partnerships, and a local community?
It AU Started With an Ice Cream Shop
In 1954, Jim Ballentine bought an ice cream shop that had been known as the Penguin since the late forties. He bought the Penguin building, lot, and existing equipment and embarked on a dream that he had shared with his wife on their first date - to own a restaurant (Markovich, 2011).
Jim and his wife, Jean, took the ice cream shop and tumed it into a classic drive-in, complete with traditional diner fare and a beer selection. The Penguin grew and so did the Ballentine family with the addition of five daughters. Popularity of the Penguin forced Jean to quit her job as a nurse to become a full-time partner with Jim. As the restaurant became a home away from home, it was only natural for the daughters to be involved with the family business.
The Penguin never had to advertise; word-of-mouth about the drive-in spread all over Charlotte. Patrons kept coming back to the restaurant for the food and cheap beer. Ballentine opened the
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Penguin seven days a week, 365 days a year. H e told his family, "There are people depending on m e to be t h e r e " (Suchetka, 1995).
In 1999, Jim Ballentine fell ill and retired, leaving ownership in the n a m e of his wife, Jean. With n o one t o continue running the restaurant, the Ballentine family k n e w it w a s t i m e to close t h e Penguin.
Then C a m e the Fried Pickles
A r o u n d the same t i m e the Penguin closed, t w o locals, Brian R o w e and Jimmy King, had b e e n playing w i t h the idea of opening a bar. Friends encouraged t h e m to approach the Ballentine family about reopening the Penguin. R o w e and K i n g signed a five-year lease agreement for the property and use of the Penguin n a m e with Jean Ballentine in 2000. The lease and n a m e w a s renewable for a second five-year term. Their promise t o Jean w a s t o maintain the spirit of the Penguin that the family had worked so hard to establish ( W S O C T V . c o m , 2010).
K i n g and R o w e set out t o fulfill their dream of opening the Penguin as a bar. However, due t o North Carolina laws, the business also h a d t o serve food in order to obtain a liquor license. So R o w e invited the caterer from his w e d d i n g , Greg Auten, to develop the m e n u and m a n a g e the kitchen.
K i n g and R o w e invested their o w n resources t o revive the Penguin by renovating the building, fixing the gaping hole over in the roof over the toilet, buying n e w kitchen equipment, and adding a j u k e b o x and red checkerboard floors. K i n g also re-vamped the logo to create a sleeker, m o r e m o d e m penguin logo. In an interview. K i n g said, " W e w a n t e d to m a k e it authentic. W e d i d n ' t want t o m a k e it like Happy Days. W e d i d n ' t want the Marilyn Monroe and the Elvis Presley vibe. ' C a u s e in the fifties they w e r e current" (Markovich, 2011). Their focus w a s o n their o w n current tastes in music and food and camaraderie. Their updated version of t h e P e n g u i n reopened in M a y 2 0 0 1 .
K i n g w a s the daytime front office guy while R o w e , a former Marine, covered the night shift. A u t e n developed a unique m e n u that w o u l d p r o v e to b e a key t o the P e n g u i n ' s fiiture popularity. All three sported heavy tattoos and a biker-bar swagger that helped t o create the business they wanted: "a dive bar that w a s n ' t threatening," a cool, safe place for p e o p l e to h a n g out w i t h the tattooed wait staff (Markovich, 2011).
It took three years of working seven days a w e e k , but the Penguin began to see lines stretching into the parking lot on a daily basis as socialites, businessmen, students, and bikers all converged on the place n o w nicknamed " T h e Bird." It w a s k n o w n for its food, fiiendly welcoming staff, and laid-back attitude. Lisa Ballentine, one of Jim Ballentine's five daughters, said, " T h e y [Auten, K i n g , and R o w e ] breathed n e w life into the P e n g u i n " (Schwab, 2010).
C u s t o m e r s ' favorites included grilled pimento cheese sandwiches, the H e m i and Small Block burgers (names drawing o n t h e popularity of stock car racing in Charlotte), and black b e a n h u m m u s . B y far, the m o s t popular m e n u item w a s the fried pickles. Auten estimated that 9 0 % of the orders w e r e accompanied by a basket of fried pickles (Suchman, 2007).
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"The Bird" Goes Nuts
On January 11, 2007, the Penguin family lost its patriarch when Jim Ballentine passed away (Obituaries, 2007). His wife, Jean, became owner of all their assets, including the Penguin property. In Jim Ballentine's obituary, Auten, King, and Rowe were listed as "extended family." Meanwhile, his beloved Penguin was about to step into the spotlight.
Brian Rowe said, "The first year it was slow, the second year it was slow. Around the fourth year, things started to pick up and the sixth and seventh year we were very busy. Then that Food Network thing aired and we went nuts" (Hodges, 2010).
In March 2007, Guy Fieri, star of the Food Network's Diners, Drive-ins, and Dives, fihned a segment at the Penguin. Auten, King, and Rowe were all featured in the segment, though most of the attention was on Auten's menu creations.
On May 7, the same day the Penguin made its national television debut, Ballentine Family Investments, LLC was formed. Ownership of the Penguin was transferred from Jean Ballentine to the limited liability company, which would later be managed by Lisa Ballentine, one of Jim and Jean's daughters.
After the segment aired on May 7, the Penguin was no longer Charlotte's hidden gem. We "took the spot from relative obscurity to a thriving hotspot," King said (King, 2010). Now, not only were patrons lining up outside the door, so were investors who were looking to capitalize on the Penguin's success. Franchising seemed like an obvious next step.
Penguin Proprietorship?
The trio initially declined franchising offers, contending that the secret of the Penguin was the mix of food, environment, and people, which could not be replicated. That sentiment changed after the premiere on Diners, Drive-ins, and Dives.
Martin Sprock, the successful franchisor of restaurants such as Flying Biscuit and Moe's Southwest Grill and CEO of Atlanta-based Raving Brands, approached Auten, King, and Rowe with a $750,000 offer to franchise the Penguin. Negotiations between Sprock and the three Penguin partners lasted about six months, but a deal was never signed. Sprock said, "I didn't try to buy this particular little restaurant right here. I was buying the name and the marks and the rights to expand the Penguin, all over into fifty states if possible" (Markovich, 2011).
In 2008, to protect the Penguin brand from knock-offs. King and Rowe worked with Jean Ballentine to trademark the Penguin logo and name. When the trademark was filed. King and Rowe's names were absent from the registration, even though King had redesigned the logo that graced bumper stickers and t-shirts advertising the restaurant and bar. The trademarks for the Penguin logo and name were filed, respectively, on July 29 and 30,2008. (See Figures 1 and 2.) Rowe recalls Jean Ballentine saying, "... as long as you're running the Penguin, you can use the name" (Markovich, 2011). Documents exist that prove this, but they are not part of the public record.
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Rowe felt the relationship he had with the Ballentine family was simple: the family owned the building and the name; the three partners [Auten, King, and Rowe] were tenants and owned the actual business model that occupied the building.
Intellectual Property
Franchisors [sellers] are entrepreneurs who have an established business they are looking to expand by licensing their brand including, but not limited to, trademarks and trade dress. Trademarks are a form of intellectual property and include trademarks (for products) or service marks (for services such as restaurants). These can be words (e.g., McDonald's, representing a hamburger restaurant) or symbols (e.g., the golden arches or the Nike "swoosh").
Trade dress is a type of trademark that is not easily defined and is a continually evolving form of intellectual property. Trade dress is best described as the elements used to identify or promote a product or service. Trade dress protection covers all senso.y impressions that consumers associate with a brand or business. These elements can include décor, uniforms, layout, wait staff, and menus. A famous example of trade dress protection would be the Hard Rock Café brand (Stim, 2010).
Trademarks are an important business asset, especially when attracting franchises. Trademarks, including logos and trade dress, communicate the brand to all the stakeholders associated with that franchise. Registration of trademarks is a way for franchisors to protect their brand; franchisees are buying the right to use an established brand.
Other forms of intellectual property that may be valuable to a franchisor or important for a business to protect are copyright (for original written or visual created works), patent (for novel, non-obvious inventions), and trade secrets (a secret which the owner zealously protects, such as the formula for Coca-Cola). The Penguin's owners had not explored whether Auten's recipes could or should be protected under one or more ofthese options.
Ruffled Feathers
The ten-year anniversary of the Auten, King, and Rowe era of the Penguin occurred in 2010. Early that year, Auten left the Penguin to start his own restaurant, Pinky's, on the west side of town because he "wanted more of his own thing" (Schwab, 2010). In May, King and Rowe signed a lease to own and operate another landmark Charlotte restaurant, the Diamond, in a joint venture with fellow restaurateur, Andy Kastanas. King and Rowe "thought it would be cool to run two historic restaurants not just in the same neighborhood, but on the same block" (Markovich, 2011). The new venture was intended to complement the existing setup at the Penguin.
After King and Rowe signed the lease on the Diamond, Lisa Ballentine approached the two about ownership in the Penguin. She wanted to keep 5 1 % ownership in the Penguin, with the remaining 4 9 % to be split between King and Rowe. She was sincere about her partnership offer, but she also had concems about "napkins . . . flying out the back door 'cause the Diamond's out of napkins" (Markovich, 2011).
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King and Rowe declined the offer. They felt the Ballentine family only owned the building, name, and logo, not the business. The business belonged to King and Rowe, and they were not going to sell out their business for minority ownership, especially when they rebuilt the Penguin from the rotting building they leased in 2000. The ownership negotiations ceased. Lisa Ballentine reflected, "Yeah, the lease was coming to an end, but you were going out with another girl anyway . . . We're all doing what's best for the Penguin" (Schwab, 2010).
In July 2010, the Ballentine family approached Martin Sprock about franchising the Penguin. Little is known about the content of the discussion, but in September 2010, Martin Sprock's representative announced that Ballentine Family Investments would not be renewing the lease with King and Rowe and that the Penguin would be under new management. King and Rowe's lease on the Penguin would end November 1, 2010. The announcement said, "The Ballentine family has decided to give their restaurant a new lease on life while staying true to the dreams their family has always kept for the Penguin" (Hodges, 2010).
King and Rowe also issued their own press release affirming their stance on ownership, stating "The Penguin Drive-In [would] cease to operate under the current ownership effective October 2 4 " (see figure 3). Although King and Rowe threatened legal action against Ballentine Family Investments, no official paperwork was filed.
#Penguingate
With the announcement about the Penguin's new management and potential franchising, websites, Facebook, and Twitter lit up with Charlotteans' reactions. #Penguingate became a trending topic as Charlotte's active social media community voiced its outrage and disappointment with the announced changes.
Mark Cline, a supporter of the Penguin under King's and Rowe's management, started an event page titled Boycott the Penguin as of Oct. 24. Cline wrote that he "started this event to show support for Brian and Jimmy, that's it." Cline only sent the event invitation to about 50 Facebook friends and by the next day, he had received 300 confirmations. The event page eventually grew to include over 15,000 people planning to boycott the Penguin as of October 24. Cline went on to comment, "I, in no way, intended this to be aimed at current, past, or future owners in a negative w a y " (Boycott the Penguin, 2010).
A comment written in response to the boycott on The Charlotte Observer blog said, "I w o n ' t eat in that building after October 24, and I won't respect anybody that does. I won't eat in a Penguin franchise. I won't eat in a restaurant owned by anybody involved in the travesty of a ' n e w ' Penguin. I will boycott" (Opinion, 2010).
News of the boycott spread beyond the Charlotte city limits. Andrew Mark Veety, resident of St. Louis, Missouri, wrote on his blog, "I think it's time to retire my Penguin tee-shirt after wearing it with pride around St. Louis for ahnost three years. It's a sad day for Charlotte.. .Fight the good fight—boycott the New Penguin Drive-in!" (Veety, 2010).
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Charlotte Magazine summed up the situation: "Rowe was stunned by the online push to boycott the New Penguin. Lisa [was] bewildered by the new reality of social media, where sarcastic insults and conspiracy theories can become fact when they're repeated and re-tweeted often enough" (Markovich, 2011).
It's Not All Black and White
As the last embers of the social media firestorm bumed out, it left the city t o m between two restaurants, the Penguin and the Diamond. There was no clear victor. "No one wins a fight over sliced dills and seasoned fiour," said restaurant critic Helen Schwab. "The genius of the Penguin, the reason for the passion and the poison, is that folks come to feel it's their own, to hold it dear and not to take it for granted" (Schwab, 2010).
References
Best N e w Restaurant (Opened in Last 12 Months): The Diamond Restaurant. (2011, August 16). Creative Loafing. Retrieved from http://clclt.com/charlotte/best-new-restaurant-opened- in-last-12-months/BestOf?oid=2441187
Boycott the Penguin as of Oct. 24. [ca. 2010]. In Facebook [Event page]. Retrieved August 13, 2011, from www.facebook.com/event.php?eid=149194901785607
Hodges, C. (2010, September 27). The Penguin Drive-In changes ownership. [Web log comment]. Retrieved from http://blogs.creativeloafing.com/Uieclog/2010/09/27/the- penguin-drive-in-changes-ownership/
Intemational Franchise Association. (2011). Retrieved from www.franchise.org
King, J. (2010, September 20). Penguin Drive-in changes ownership [Press release]. Retrieved from http://uptownclt.com/2010/09/the-saga-at-the-penguin-continues/
Markovich, J. (2011, March 29). Frayed Pride and Fried Pickles. Charlotte Magazine. Retrieved from http://charlottemagazine.com/Charlotte-Magazine/April-2011/Fraved-Pride-and- Friend-Pickles/
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Melvin, S. P. (2011). The Legal Environment of Business: A Managerial Approach. New York, NY: McGraw-Hül Irwin.
Obituaries in the news. (2007, January 12). The Charlotte Observer. Retrieved from http://www.legacv.com/obituaries/charlotte/obituarv.aspx?n=iames-william- ballentine&pid=85940149
Opinion: Losing a unique 'Penguin' hurts the hearts of its fans. (2010, October 6). The Charlotte Observer. Retrieved from www.charlotteobserver.com/2010/10/06/1741504/losing-a- unique-penguin-hurts.html
Schwab, H. (2010, September 21). "Everybody's cool": Penguin update. [Web log comment]. Retrieved from http://helendining.blogspot.com/2010/09/penguin-update.html
Schwab, H. (2010, October 3). Why we care about the Penguin's fate. The Charlotte Observer. Retrieved from http://www.charlotteobserver.com/2010/10/04/1737743/the- polarizingplight-of-the-penguin.html
Spanberg, E. (2011, April 22). Growth on Martin Sprock's Menu. The Charlotte Business Joumal. Retrieved from http://www.bizioumals.com/charlotte/print- edition/2011/04/22/growth-on-sprocks-menu.html
Stim, R (2010). Patent, Copyright, and Trademark: An Intellectual Property Desk Reference. Berkeley, CA: NOLO.
Suchetka, D. (1995, December 23). Camaraderies on Tap at the Penguin. The Charlotte Observer. Retrieved from http://ttomlinson.blogspot.com/2010/09/penguin-version- 10.html
Suchman, P. (Producer). (2007, May 7). Diners, Drive-Ins, and Dives [Television broadcast]. New York, NY; Scripts Networks Interactive.
Veety, A. M. (2010, September 23). Penguin Drive-In—Say It Ain't So. [Web log comment]. Retrieved from www.andrewmarkveetv.com/2010/09/penguin-drive-in-sav-it-aint- so.html
WSOCTV.com. (2010, September 21). The Penguin Drive-In to Change Management, Concept. Retrieved from http://www.wsoctv.com/news/25097714/detail.html
Website References:
United States Copyright Office, http://www.copvright. gov. United States Patent and Trademark Office, http://www.uspto.gov.
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Tahle 1
Timeline of the Penguin Drive-In
Year
1942
1954
1999
2000
2001
2007
2008
2010
Major Developments
• The Penguin was originally built to serve as a roadside soda and ice cream shop.
• Jim Ballentine bought the Penguin building, lot, and equipment inside.
• Jim retired and transferred ownership of the Penguin to his wife Jean Ballentine. • The Penguin closed its doors. The building was put up for rent.
• Jimmy King and Brian Rowe signed the lease on the building and the Penguin name.
• The Penguin re-opened as a bar and restaurant.
• January 11 : Jim Ballentine died. • March: The Food Network filmed a segment at the Penguin. • May 7: The segment aired on the Food Network. • May 7: The Ballentine family formed Ballentine Family Investments, LLC. • May 8: Jean Ballentine transferred ownership of the Penguin to Ballentine Family
Investments, LLC. • Franchisor Martin Sprock approached Auten, King, & Rowe about franchising
the Penguin. • July 29: Jean Ballentine filed trademark for the Penguin name. • July 30: Jean Ballentine filed trademark for the Penguin logo. • January: Greg Auten left the Penguin to open Pinky's. • May 7: King & Rowe and Andy Kastanas signed a joint venture to run the
Diamond. • September 20: Ballentine Family Investments, LLC and Jimmy King issued press
release announcing decision not to renew lease with King & Rowe. • October 24: Rowe & King's last night operating the Penguin.
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Table 2
"The Bird" Bios (Listed in order of introduction in the case)
Jim Ballentine: Owned and operated the Penguin with his family from 1954 until his retirement in 1999. He died January 11, 2007.
Jean Ballentine: Wife of Jim Ballentine. After Jim retired in 1999, Jean became owner of the Penguin until 2007 when she transferred ownership of the Penguin to Ballentine Family Investaents, LLC. Both of the trademarks for the Penguin name and logo were registered under Jean's individual name.
Jimmy King: Air Force veteran and Rowe's partner; they leased the Penguin from Jean Ballentine in 2000. King redesigned the Penguin logo and was more of the front office guy until October 24,2010.
Brian Rowe: Former Marine and King's partner; they leased the Penguin from Jean Ballentine in 2000. Rowe helped to manage and operate the Penguin from 2001 until October 24,2010.
Greg Auten: Became chef at the Penguin in 2001 and created many of the menu items that made the Penguin famous, most notably the fried pickles. He left the Penguin in 2010 to start his own restaurant, Pinky's.
Guy Fieri: Celebrity chef and host of the Food Network's Diners, Drive-ins, and Dives.
Lisa Ballentine: Daughter of Jim and Jean Ballentine. Lisa is credited with making the decision not to renew the lease with King and Rowe in 2010. Lisa took over management of the Penguin on November 1,2010.
Martin Sprock: Successñil franchisor of brands such as M œ ' s Southwest Grill and the Flying Biscuit. Sprock's franchising company. Big Game Brands, finalized franchising agreements with Ballentine Family Investaents in November 2010 (Spanberg, 2011).
Andy Kastanas: Charlotte restaurateur who entered into a joint venture with King and Rowe to operate the Diamond, another landmark restaurant around the comer from the Penguin.
Fall/Winter, 2013 BCJ 28
Figure 1. Trademark Registration for Penguin Drive-In Name
Int CL: 43
Prior U.S. CIS.: 100 and 101 ^ , ^„^ , „ , Reg. No. 3,586,482
U n i t e d S t a t e s P a t e n t and T r a d e m a r k O f f i c e Registered Mar. IQ. 2009 SERVICE MARK
PRINCIPAL REGISTER
PENGUIN DRIVE-IN
BALLENTINE. JEAN A. (UNITED STATES INDI- VIDUAL)
1921 COMMONWEALTH AVENUE
CHARLOTTE, NC Î820S
FOR: RESTAURANT, TAKE-OUT, CATERING SERVICES, BAR ,A.ND COCKX^UL LOUNGE SERVI- CES, IN CLASS 43 (U,S. CLS. 100 AND 101).
HtRST USE 12-31-1954; IN COMMERCE 12-31-1954.
THE MARK CONSISTS OF STANDARD CHAR- ACTERS WITHOUT CLAIM TO ANY PARTICULAR FONT, ST\XE, SIZE, OR COLOR.
NO CLAIM IS MADE TO THE EXCLUSIVE RIGHT TO USE "DRI\'E-IN"', APART FROM THE Ni-VRK AS SHOWN.
SER. NO. 77-533,979, FILED 7-29-ä»8.
DORITT L. CARROLL, EXAMINING ATTORNEY
Fall/Winter, 2013 BCJ 29
Figure 2. Trademark Registration of Penguin Drive-In Logo
Int. a , : 43
Prior U.S. a s . : 100 and 101 Reg. No. 3,586,500
United S t a t e s Patent and T r a d e m a r k Office R îaered Mar, lo. 2009
SERVICE MARK PRINCIPAL REGISTER
BALLENTTNE. JEAN A, (UNITED STATES INDI-
CHARLOTTE. NC 2S208
NO CLAIM IS MADE TO THE EXCLUSIVE ^ ° " T ™ USE "FOOD", "DRINKS". OR "DRIVE- IN«. APART FROM THE MARK AS SHOWTi.
FOR: RESTAURANT, TAKE-OUT, CATERING SERVICES, BAR AND COCKTAIL LOUNGE SERXI- CES. IN CLASS 43 (U.S. CLS. 100 AND 101).
SER. NO. 77-534^78, HDLED 7-30-2008.
HRST USE 12-31-aX)0; IN COMMERCE 12-31-3)00. DORITT L. CARROLL, EXAMINING ATtORNEY
Fall/Winter, 2 0 1 3 BCJ 30
Figure 3.
Press Release Announcing Management Change at Penguin
Press Release Contact: Jimmy King Phone: (704) 491-8012 FOR IMMEDIATE RELEASE
September 20,2010
Penguin Drive-in changes ownership
Charlotte, NC, September 20, 2010: The Penguin Drive-In is changing ownership after 10 years of business in the Plaza Midwood neighborhood. The popular restaurant was leased to current partners Jimmy King and Brian Rowe in 2000, who took the spot from relative obscurity to a thriving hotspot known for their handmade burgers and fried pickles. The Penguin has won numerous awards and received national recognition, including a feature on the Food Network's series Diners, Drive-ins and Dives. The building's original owners, the Ballentine family, will not renew the current lease and will retain ownership in the building and the Penguin Drive-In name.
Partners King and Rowe have announced plans to provide many signature items in their new venture. The Diamond Restaurant. The Diamond is a joint venture that includes Andy Kastanas of Soul Gastrolounge. Located at 1901 Commonwealth, The Diamond is currently undergoing extensive renovations with plans to open as a 24-hour diner in late October.
Partner Jimmy King states, "We wish the Ballentine family the best in their endeavors and thank all of our patrons for 10 years of incredible loyalty. We remain firmly committed to this neighborhood. Regardless of The Penguin's fixture, we will remain in Plaza Midwood and continue to provide the quality of food and service that we have since re-opening The Penguin in 2000."
The Penguin Drive-In will cease to operate under the current ownership effective October 24.
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