May a lawyer join a for-profit marketing franchise, paying royalties on gross revenues and advertising under the franchisor's trademarks like "Personal Injury Network"?

Plain-English summary

A franchisor planned to provide marketing services and personal injury materials to lawyers, including advertising under trademarks like "PERSONAL INJURY NETWORK" and "1-800-INJURY" used with each franchisee's name. The franchisee would pay an initial fee, continuing royalties based on gross revenues, and an advertising-support percentage of gross revenues, none of it tied to individual cases or referrals. The committee considered whether a lawyer may pay the royalty and whether the lawyer may use the franchisor's trademarks in advertising.

On the royalty, the committee noted Rule 16-702(C) lets a lawyer pay the reasonable cost of advertising or of preparing a permitted communication, so a royalty arrangement that reflects those reasonable costs does not necessarily violate the rules. On fee-splitting under Rule 16-504, it observed that most jurisdictions allow paying a percentage of fees to approved referral services despite fee-splitting rules, and that the concern is implicated even less here because royalties are based on gross revenues generally, not fees in particular cases, so the arrangement would not seem to compromise the lawyer's professional independence. The committee qualified this by assuming no referrals are part of the franchise, since referrals by a for-profit organization may violate the solicitation rules.

On the trademarks, the committee looked to Rule 16-704, which limits trade names and bars lawyers from stating or implying they practice in an organization unless they do (16-704(A) and (D)), read against Rule 16-701 (false or misleading communications). Because the public might understand "PERSONAL INJURY NETWORK" as an organization of personal injury specialists, the committee concluded those limits apply unless explanatory language makes clear the franchisees are not such an organization. With that explanation, and assuming compliance with Rule 16-701, Rule 16-702, and the specialization rules in 16-701(D) and 16-703, using the franchisor's trademarks alongside the attorney-franchisee's own name would not violate the rules.

Currency note

This opinion was issued in 1988, under the New Mexico Rules of Professional Conduct effective January 1, 1987 (Rules 16-701 through 16-704 and 16-504). It predates the State Bar of New Mexico's November 3, 2008 revisions to those Rules (the New Mexico adoption of the ABA Ethics 2000 changes), and the advertising and specialization rules have since been revised. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer pay a marketing franchisor royalties based on gross revenues?

A: The opinion concluded a royalty does not necessarily violate the rules if it reflects the reasonable cost of advertising or preparing a permitted communication under Rule 16-702(C), and because it is tied to gross revenues rather than particular cases, it does not appear to compromise professional independence.

Q: Does paying the franchisor count as improper fee-splitting?

A: The committee concluded the fee-splitting rule (16-504) is implicated even less than for approved referral services, since the royalties are based on gross revenues generally and not on fees collected in particular cases, assuming the franchise involves no referrals.

Q: Can a lawyer advertise under a trademark like "Personal Injury Network"?

A: The committee concluded yes, but only if explanatory language makes clear the franchisees are not an organization of personal injury specialists, because otherwise the trademark could mislead the public in violation of Rules 16-701 and 16-704.

Q: What assumption was central to the opinion?

A: The committee assumed the franchise involves no referrals, cautioning that referrals by a for-profit organization may violate the solicitation rules.

Background and rules framework

The opinion applied the Rules of Professional Conduct effective January 1, 1987: Rule 16-702 (advertising and paying its reasonable cost), Rule 16-504 (fee-splitting and professional independence), Rule 16-704 (firm names and trade names), and Rule 16-701 (false or misleading communications; specialization), with Rule 16-703 on specialization. These correspond to current Model Rules 7.2, 5.4, 7.5, and 7.1.

Citations and references

Rules of Professional Conduct:

• Rule 16-702(C) (paying the reasonable cost of advertising); Rule 16-504 (sharing fees; professional independence)
• Rule 16-704(A), (D) (trade names; no implying an organization unless it exists); Rule 16-701 and 16-703 (false or misleading communications; specialization)

Other opinions cited:

• ABA/BNA Lawyers' Manual on Professional Conduct 41:804, 801:6615 (Opinion 359) (referral services and fee-splitting)

See also

• NM Ethics Op. 1987-7: For-Profit Referral Service Fees
• NM Ethics Op. 1987-3: Law-Firm Newsletter Solicitation

Source

• Landing page: https://www.sbnm.org/Leadership/Committees/Ethics-Advisory-Committee/Ethics-Advisory-Opinions
• Original PDF: https://www.sbnm.org/Portals/NMBAR/AboutUs/committees/Ethics/1988/1988-3.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Advisory Opinion 1988-3
Facts:
A franchiser is establishing a franchise to provide marketing services and personal injury materials to lawyers. The marketing services include advertising and the use of trademarks in the broadcast and print media. The trademarks will be used with the franchisee's name. According to the attorney who requested the advisory opinion, "PERSONAL INJURY NETWORK" and "1-800-INJURY" are examples of the trademarks which will accompany each franchisee's ad.
The franchisee will be required to pay an initial franchise fee and continuing royalties to the franchisor based on franchisee's gross revenues. In addition, there will be a continuing obligation to pay a percentage of the gross revenues to support advertising. Both the continuing royalties to the franchisor and the payments for advertising will be based on the franchisee's gross revenues and not on individual cases obtained as a result of the advertising. According to the request for an advisory opinion, the payments for advertising will not involve any payments for referrals.
Issues:
1. Whether an attorney may pay the franchisor a royalty for the use of the franchises trademarks and marketing assistance?
2. Whether an attorney may use the franchisor's trademarks in connection with the attorney's advertising?
Analysis:
1. Whether an attorney may pay the franchiser a royalty for the use of the franchises trademarks and marketing assistance?
In Section 16-702(C) of the New Mexico Rules of Professional Conduct, a lawyer may pay the reasonable cost of advertising or the reasonable cost of preparing a permitted communication. It follows that as long as the royalty payments reflect the reasonable cost of the advertising or the reasonable cost of preparing the communication, a royalty arrangement does not necessarily violate any ethical requirements.
As to the question of fee splitting under Section 16-504, most jurisdictions allow for payment of a percentage of the fees collected in particular cases to approved lawyer referral services despite the fee splitting rules. ABA/BNA Lawyers' Manual on Professional Conduct, 41:804. It would appear that the fee splitting rules are implicated even less in the present case in that royalties are not based on fees collected in particular cases, but rather on gross revenues generally. Such an arrangement would not seem to compromise the professional independence of the lawyer. This conclusion, however, assumes that there are no referrals as a part of the franchise arrangement, since referrals by a for-profit organization may violate the Rules of Professional Conduct, particularly the solicitation rules. See, e.g., ABA/BNA Lawyers' Manual on Professional Conduct, 801:6615, Opinion 359.
2. Whether an attorney may use the franchisor's trademarks in connection with the attorney's advertising.
Section 16-704 of the New Mexico Rules of Professional Conduct does not specifically mention trademarks, although it does discuss the circumstances under which trade names may be used and otherwise limits lawyers from stating or implying that they practice in a particular organization unless they do. In 16-704(A), it states that a trade name may be used by a lawyer in private practice if it does not imply connection with a government agency or with a public or charitable legal services organization and is not otherwise in violation of Rule 16-701 involving false or misleading communications about the lawyer or the lawyer's services. Section 16-704(D) states that lawyers may not state or imply that they practice in a partnership or other organization unless they do. Because the use of the trademark "PERSONAL INJURY NETWORK" might be understood by the general public as being an organization of specialists in personal injury law, the limitations set forth in Section 16-704 would appear to be applicable to the franchise arrangement contemplated, unless explanatory language is used as part of the advertising. If an explanation is included with the advertising, so that it is clear that participants in the franchise arrangement are not part of an organization of personal injury lawyers, use of the franchiser's trademarks along with the attorney/franchisee's own name in connection with the advertising would not violate the New Mexico Rules of Professional Conduct. This conclusion, of course, assumes that the advertising does not violate Section 16-701 involving false or misleading communications and otherwise complies with Section 16-702 relating to advertising. Finally, the conclusion assumes that the advertising complies with the rules relating to specialization set forth in 16-701(D) and 16-703.