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Uncovering the Legal “Soul” Behind Boutique Fitness – Part II

By [Wednesday, January 8th, 2014]

BY NICOLE SCHWARTZ, NYLS ’14

Welcome to Part II of this two-part series on how boutique fitness studios flex their legal muscles.  See here for Part I.  Today’s entry discusses the legal issues raised by the studio-instructor and studio-customer relationships.

I.  TRAINERS WHO TAKE OFF ON THEIR OWN RIDE

equinox-fitness-club-logo1A. Legal Issues With Instructor-Employees

If you are a real boutique fitness aficionado, then you know that a web of incestuous relations exists. Your favorite Tracy Anderson instructor may or may not have been a Physique 57 instructor—and why not, the instructor’s fitness pedigree is confirmed. Stay tuned for the outcome of Equinox’s $40 million lawsuit against former trainers who opened Soho Strength Lab, 5 blocks away from their former stomping ground. Many successful boutique fitness businesses even have certification programs. Exhale offers a 200-hour certification program for $3,500.00, where teachers-in-training learn exercises that emphasize ways to tighten the core. Soul Cycle requires all instructors (once selected from competitive audition videos) to complete an 8-week training program prior to teaching.

Boutique fitness businesses give instructors a tempting platform and exposure to clients willing to pay a lot to look good.  Even I am guilty of asking boutique fitness instructors about private lessons on the side, without going through the studio—a possibly improper request given that most boutique fitness businesses market private lessons. Instructors in these situations can offer lower prices because administrative costs are lower if you train a client at home, or at the client’s private gym (and yes, the boutique fitness clientele likely has access to “normal” gyms, like Equinox).  The smart studio owner will make it clear in employment contracts with instructors that they cannot offer private lessons to clients they meet through the studio’s own classes, unless they do so through the studio’s private lesson program.

B. Competing Studios, Soliciting Clients, Client Lists, and Misappropriation of Trade Secrets

Another problem occurs when instructors ride off with client lists and open competing boutique fitness studios.  Pure Power Boot Camp and Warrior Fitness Boot Camp battled it out over this exact issue in Manhattan federal court in 2011. Pure Power owner, Lauren Brenner, hired Ruben Belliard and Alex Fell to work as “drill” instructors. Despite signing non-compete agreements, Belliard and Fell planned to replicate Pure Power, and in 2008 opened the competing Warrior Fitness. Brenner later obtained emails (received via login information stored on Pure Power computers) revealing that Belliard and Fell stole Pure Power customer forms, customer lists, training and instruction materials, and email exchanges with Pure Power clients, all in anticipation of establishing a competing business.

pure power boot campThe federal court ruled that the former employees violated the non-disclosure clause in their employment agreement and breached their duty of loyalty.  The court awarded damages to Brenner, requiring Belliard to forfeit the $55,197 he was paid by Pure Power during the time he was planning to open Warrior Fitness, and to pay Brenner $110,393 in punitive damages. Fell had to forfeit $40,177 in pay, and cough up $40,177 in punitive damages. Warrior Fitness however was not discouraged, since the boot camp remains open for drill calls.

This case is a classic example of the studio winning the battle but losing the war against former employees, because the non-competition clause in Pure Power’s employment agreements was found unenforceable. The agreement was unreasonable in terms of duration (ten-year prohibition) and in terms of geographic scope (worldwide). Brenner introduced no evidence to support the proposition that such a covenant was reasonable. Furthermore, the agreement prohibited Belliard and Fell from working at a place that calls itself a boot camp, and to enforce such an agreement would likely result in the loss of Belliard’s and Fell’s ability to earn a living as fitness instructors. Why? Because so many exercise classes in New York City advertise the boot camp method, Exhale Core Fusion Boot Camp, NYC’s 5 Best Boot Camps, The People’s Bootcamp, Barry’s Bootcamp, Stacy’s Bootcamp, Equinox “ETC” Bootcamp.

C. Preventive Steps for Boutique Fitness Owners

So, what’s the moral of the story for fitness owners in dealing with instructor employees?

1.  Keep the customer list on a need to know basis. Do not allow an instructor to moonlight as a front desk staff member. While it is not a perfect fix, it certainly limits access between instructors and the sign-in process.

2.  Require instructors to sign non-disclosure agreements.  The most significant points to include:

  • The instructor shall not make, use or sell the disclosed information without first entering into an agreement with studio to do so
  • The instructor shall not disclose any information to a third party
  • The instructor agrees that he or she shall not compete with the studio for products, clients and services offered by the studio for a reasonable amount of time
  • The instructor shall not duplicate or replicate in any manner the products, or services provided by the studio

3.  Craft non-competition clauses in instructor employment agreements that are reasonable in duration and geographic scope so that a court will be willing to enforce them later.

4.  Treat instructors well and they are less likely to run/ride/yogi off. While it is your studio, allowing instructors to give meaningful input will allow instructors to feel part of the bigger picture. Dismiss an instructor’s ideas and you will create a culture of disgruntled employees. Try to consider every comment and implement their ideas where appropriate. Open communication will foster an environment where instructors will seek advice from you.

II.  CUSTOMER WAIVER OF LIABILITY

It is 20 minutes before your first Barry’s Bootcamp class and you get to the studio in plenty of time. A good-looking, toned, front desk attendant asks for your name and to complete a waiver. You sign without reading, or reading enough to know they want you to fill in your name—then you scurry off to the racks of tanks that once purchased will signify your entrant to the Barry’s cult. The waiver form will never cross your mind again. You will attend numerous classes, love the new smoothies they offer and forget about that silly form—and for good reason, you are here to workout. But what is that waiver really all about? A waiver is a contract between a fitness studio and a participant signed prior to participation by which the participant agrees to absolve the studio of any liability for injuries resulting from the negligence of the studio, its instructors, or its other employees.

A. Sample Waiver Forms

To get a better flavor of what fitness studio waiver forms are trying to accomplish, let’s look at two that are fairly standard.  First, the Barry’s Waiver is titled “ENLISTEE INFORMATION, INFORMED CONSENT AND RELEASE.” The form itself plays into the theme of Bootcamp, with a specific space for your Dogtag number. The form states, “by signing this document, you acknowledge that you have been fully informed of the strenuous nature of this exercise program and the possibility of adverse psychological occurrences including, but not limited to…death. By signing this document, you assume all risk for your health and wellbeing and hold harmless for any responsibility, cost or damages Barry’s Bootcamp LLC, its instructors, members and employees…”

Physique 57’s Waiver is more detailed. Participants sign to release Physique 57 not only for themselves, but the term “Participant” also includes members of the Participant’s family, e.g., Participant’s spouse, parents, children, heirs and assigns. Physique’s waiver also includes a provision just about Participant’s knowledge, that Participant “had the opportunity to view the site of the exercise classes, review instructor qualifications, had the scope of risks explained, and had the opportunity to ask questions regarding the classes and risks associated with Physique’s exercise classes.” I can attest to the fact that at Physique 57’s original location on 57th Street, prior to entering the locker room facilities, posted on a wall in neat frames are instructor biographies, including but not limited to their dance experience, training certifications and general interests. Physique’s waiver specifically includes that Participant assumes full responsibility for risks of bodily injury, property damage or death to Participant due to ordinary negligence or gross negligence of Physique 57 and the ordinary negligence, gross negligence, or willful misconduct of any third party including others participating in Physique 57’s exercise classes.

B. Are Waivers Worth Their Weight?

Despite the efforts taken by fitness studios to protect themselves from negligence claims, these types of waivers are usually unenforceable, at least in New York state.  New York’s General Obligations Law, Section 5-326 states:

“Agreements exempting…gymnasiums, places of public amusement or recreation and similar establishments from liability for negligence void and unenforceable. Every covenant … in connection with any contract, membership application … or similar writing, entered into between the owner of any…gymnasium, place of public amusement or recreation, or similar establishment and the user of such facilities, pursuant to which such owner receives a fee for the use of such facilities, which exempts the said owner from liability for damages caused by or resulting from the negligence of the owner or their agents, servants or employees shall be deemed to be void as against public policy and wholly unenforceable.”

Thus, Physique 57’s waiver provision that exempts the studio from claims of ordinary negligence, gross negligence, or willful misconduct, is void and unenforceable.  No participant enters a boutique fitness class and expects willful misconduct— it seems unlikely a court would be sympathetic to an instructor who slams a 10-pound dumbbell in a Participant’s face.

Boutique fitness owners however should still insist on participants signing waivers. Waivers demonstrate that the boutique fitness owner at least took minimal steps to ensure that all participants were made aware of the risks associated with exercise. 

Uncovering the Legal “Soul” Behind Boutique Fitness – Part I

By [Tuesday, January 7th, 2014]

spinningHow Barry’s Bootcamp, Physique 57 and Soulcycle Flex Their Legal Muscles (Part I of a two-part series on boutique fitness studios).

BY NICOLE SCHWARTZ, NYLS ’14

New York City is where boutique fitness dreams are made of: Soul Cycle, Exhale Mind Body, Physique 57, Flywheel, The Bari Studio.  If you want to sell one-time classes at $36-$40 a pop—or a 10-pack in the $30/class range—NYC is where to start. Although Barry’s Bootcamp originated in Los Angeles, its recent migration to NYC has already made marks on the abs of Chelsea and Tribeca. There are rumors that people want to rename the Flatiron District, the “Fitness District” in light of the many boutique fitness businesses that have located there. With so many fitness studios popping up, it is time to explore the legal challenges these businesses face.  Part I of this series will address the trademark and intellectual property issues facing boutique fitness businesses.  Part II, to be published tomorrow, will address the legal issues raised by the studio-instructor  and studio-customer relationships.

TRADEMARKING A STUDIO NAME

Trademarks are essential to boutique fitness businesses. In fact, it is the only way to distinguish one set of abs from the next. Trademark law is about using a particular word, symbol, or phrase to identify a service or product and thereby protecting consumers from confusion. For example, if someone unrelated to Barry’s Bootcamp created a Barry’s BarreCamp class, it is likely fitness consumers may believe Barry’s Bootcamp now offers barre classes. It is also possible that Barry’s Bootcamp could claim infringement against the newcomer, arguing that its choice of name purposefully feeds on the goodwill established by the Barry’s Bootcamp brand.

A. Trademarks and Distinctiveness

physique 57A lawsuit like the one hypothesized above actually was brought in 2009.  Physique 57 sought to enjoin Barre Physique from using the word “physique” in its name. Physique 57 unsuccessfully argued that its mark is inherently distinctive because the term “57”: (1) connotes the duration in minutes of Physique 57’s class; (2) refers to the first location of Physique 57 (on 57th Street in New York City); and (3) was chosen because it sounds similar to the famous club Studio 54. Alternatively, Physique 57 argued that its use of the generic term “physique” had achieved secondary meaning because the primary significance of the term “Physique 57” in the minds of the consuming public is not the product—a barre class to improve your physique—but the producer. In other words, Physique 57 argued that consumers associate the word only with its classes, not just any old barre, Lotte Berk Method class.  This argument also failed.

To achieve secondary meaning, the courts inquire into the consumer’s attitude toward the mark. Relevant factors to this inquiry are:

  1. Amount and manner of advertising, e.g., Physique 57 has grown to an extent that it has attracted well-known celebrities, such as Kelly Ripa, and has a strong presence online via its website;
  2. Volume of sales, e.g., the Physique 57 Workout DVD sold approximately 35,000 copies in the first seven weeks of distribution;
  3. Length and manner of use, e.g., Physique 57 currently operates six locations nationwide and one location in Dubai, Physique 57; and
  4. Results of consumer surveys, e.g., a Facebook page with 30,968 “likes.” (For comparison, Barry’s Bootcamp New York and California only have 16,307 “likes”).

Despite these factors, however, Physique 57 lost its argument to stop Barre Physique from using the word “physique.” While the court’s reasoning is not publicly available, it is possible that the court found the term “physique” to be generic, meaning the term “physique” by itself does not automatically connote to a consumer the fitness studio Physique 57. Alternatively, the court may have found the term too descriptive, meaning consumers interpret the term “physique” to describe the goods or services provided, and it has not acquired secondary meaning. Here, the court may have noted that the dictionary definition of the word physique is not such a stretch from the services offered by Physique 57.

Additionally, the court may have found that the word is helpful to Physique 57’s competitors’ in describing classes offered. For example, competitor Pop Physique describes to clients that taking its classes will result in a “popular physique” that is long, with lean muscles and flat abs. Competitors Mary Helen Bowers similarly describes the resulting ballet physique as toned and sleek, and Ballet Physique includes the word in its name. The word “physique” also effectively describes the desired results of non-barre classes offered by Fighter Physique, Superhero Physique, and Beach Physique. Even manufacturers of “physique” exercise equipment use the word. The word clearly can describe whatever “fill in the blank” physique the company is selling.

What does this mean for boutique fitness owners? Try not to name your fitness studio “THE GYM,” or your barre class, “Barre Pro” as it will make the argument for a valid trademark a lot more difficult. It is better to create an arbitrary mark that includes a word which is used in a way that has nothing to do with its meaning.  A good example is Soul Cycle, because the meaning of the word “soul” has nothing to do with indoor cycling classes (that is, before Soul Cycle rode onto the cycling scene).  Even better, create a fanciful mark consisting of a made-up word invented strictly to be used as a trademark.  How about the Fhitting Room, anyone?

B. Trademarks and Domain Names

Another legal battle that faces boutique fitness owners is establishing rights to Internet domain names. Tracy Anderson finally won the rights to her domain name. If you do not know who Tracy Anderson is, you need to exercise your fitness world awareness muscles. Known for her body-transforming superpowers, Anderson’s work is displayed worldwide via the physiques of celebrities who swear by Anderson. Anderson’s business partner, Gwyneth Paltrow, appeared on the cover of Self Magazine and shared the coveted secrets to getting true Anderson Abs. So, at the rumored $900.00 per month (plus the $1500.00 initiation fee), what is the Tracy Anderson Method all about? Anderson pioneered dance cardio, which is a hybrid of the toning moves you would get from a barre class, mixed with the heart pumping cardio associated with dancing at a club or running on a treadmill, if you could run in all directions (forwards, backwards, sideways and at all different inclines). Sounds fun right?

tracy andersonSomeone had squatted on the domain name tracyanderson.com.  To win back the domain name, Tracy Anderson had to file a challenge with the Arbitration and Mediation Center of the World Intellectual Property Organization (WIPO), and prove three factors:

First, the challenger must show that he or she owns a trademark and it is confusingly similar to the domain name.  Tracy Anderson held the registered trademark “Tracy Anderson Method” and asserted that the disputed domain name “tracyanderson.com” is confusingly similar.  Anderson presented evidence of her rights in the trademark via the Federal Registration Certificate for “Tracy Anderson Method,” that the trademark’s first use in commerce predated the registration of the disputed domain name, and publications featuring the Tracy Anderson Method similarly predated the registration of the disputed domain name. To prove confusion, Anderson showed that the disputed domain name is her name, and that the chances of consumers performing “Tracy Anderson”-related web searches will yield both the disputed domain name and tracyandersonmethod.com, which strongly indicates that the web-based marketing of her business will confuse consumers.  The arbitration panel agreed that the disputed domain name was confusingly similar to Anderson’s trademark, and the mere fact that “Anderson” and “Tracy Anderson” are common names was not sufficient to avoid confusion with Anderson’s trademark.

Second, a challenger must show that the owner of the domain name has no legitimate interest or right in the domain name. There are three types of legitimate interests a domain name owner  can claim: (1) that he or she was selling goods and services prior to notice of the dispute, (2) that the owner has been commonly known by the disputed domain name, or (3) that the  owner is making legitimate noncommercial or fair use of the name without intent of commercial gain, or misleading or diverting consumers or tarnishing the trademark at issue. Here Anderson, explained that the disputed domain owner is neither affiliated with her nor licensed to use her trademarks. Furthermore, Anderson offered evidence that while the owner of the disputed domain name is in the business of selling domain names, the fact that tracyanderson.com is offered at a price ten times that of other domain names offered for sale, including other “Anderson” names, makes it clear the owner’s use of the disputed domain name is in bad faith.  The arbitration panel agreed with Anderson that, even though the disputed domain owner’s legitimate business is selling domain names, the argument is undermined by the high price tag, which suggests the domain owner was targeting Anderson’s trademark.

Third, a challenger must show that the domain name was registered in bad faith. Here, Anderson pointed to the Anti-Cybersquatting Consumer Protection Act of 1999 that provides for the transfer of domain names based upon celebrity names. The panel rejected the disputed domain owner’s argument, that he was unaware of Anderson’s celebrity status, because the exorbitant price tag suggested otherwise.

C. Trademark Tips for Boutique Fitness Owners.

The key advice for any boutique fitness owner is to register and establish use of the trademark to claim and protect ownership of your studio’s name.

(1) Register the mark. Courts will give a presumption of validity if the mark is registered. How do you register? The Lanham Act provides for a national system of trademark registration and protects the owner of a trademark against the use of similar marks if such use is likely to result in consumer confusion, or if the dilution of a famous mark is likely to occur. A registered mark has many sections of the Act at its disposal, unlike an unregistered mark that can only state a claim pursuant to section 43(a).

(2) Build a library of evidence that demonstrates the mark has achieved secondary meaning in the minds of consumers. So, when someone says, “I JUST BARRY’D,” listeners know he just ran his face off at Barry’s Bootcamp.  Some smart moves on this score include:

> Collect and file press clippings about the fitness studio.

> Appear on news segments to promote the studio.

Market the studio through product placement on television shows.

(3) Demonstrate consumer knowledge of the mark via social media, e.g., track Facebook followers, email subscribers, Twitter followers, Instagram followers, etc.

Stay tuned for tomorrow’s post, Part II of this series, on legal issues confronting the boutique fitness business.