The Knot is tied up in a dispute with franchisees of its Wedding Pages unit, a sign that brick-and-click agreements are not always a match made in heaven.
Like many tales of failed marriages, the fight centers on money. A majority of Wedding Pages' franchisees contend that because The Knot owns 100 percent of Wedding Pages, they should have the exclusive right to retain use of The Knot name in regional publications, along with affiliation with The Knot Web site, after a joint promotional agreement between the two sides closes later this year. But for this right, The Knot wants more money.
Thursday, a preliminary injunction against The Knot was denied in the Supreme Court in the State of New York. However, the two parties were ordered to resolve their disagreement through an appointed mediator by Nov. 27, according to lawyers representing both sides.
"The Knot has now done an about-face and is threatening to take away our right to use The Knot name and to circumvent our franchise agreements by competing against us in our own territories," said Todd Kabes, a San Antonio franchise owner.
"We are pleased with the court's decision. We believe the allegations are unfounded, and we will continue to contest vigorously this case filed by some disgruntled Wedding Pages franchise owners," The Knot chief executive David Lui said in a statement.
Because the climate for dot-coms has changed dramatically since April, when the market for high-flying Internet stocks underwent a correction, pressure to show profits has caused many online consumer businesses to re-evaluate their strategies. Shares of The Knot, which went public last December, have languished near their 52-week low of $2 in recent months, down from a high of $21.
"These are perilous days for business-to-consumer sites, and economics is ruling," said Jack Staff, chief Internet economist at Zona Research.
"As we shift form the old economy to the new economy, Internet real estate is valuable," Staff said. "The question is, if a deal falls apart, how easy is it for either side to reconstitute the other side of the equation. The Knot is probably saying 'You need us more than we need you.'"
The Knot, based in New York, entered into an 18-month promotional agreement with Wedding Pages in July of 1999. Wedding Pages owns a franchise of 18 regional publications devoted to nuptial planning and guidance information.
"Business plan needed some changes"
Under the deal, The Knot gained exposure in its franchisees' local magazines, and the franchisees established strong footing on the Web by being given use of The Knot's site, which offers bride-and-grooms-to-be personalized planning tools and tips, local resources and a gift registry.
The Knot bought Wedding Pages about eight months later, and while the franchise agreements stayed intact, they will end Dec. 31. And The Knot does not intend to renew them, leaving the franchisees without their former home on the Web.
Instead, the company is offering the franchisees affiliation with its Web site and the ability to sell advertising on the site in return for a commission on each ad sale. Franchisees will also have to meet monthly sales quotas.
The Knot "decided their business plan needed some changes," said Alan Seagal, a New York-based lawyer representing The Knot. And "they just said 'No.'
"They wanted use of the Web site free forever. This case is all about that they are not franchisees of The Knot," he said. Although The Knot owns Wedding Pages, it does not own its franchisees, Seagal said, giving the company the right to end its agreements with the franchisees.
But the other side doesn't see it quite this way.
"The basic problem is that our clients were given the right to use The Knot name; they've built a name and reputation on the basis of the name?and now The Knot wants to say that's all over as of the end of this year," said Michael Garner, a lawyer representing a group of Wedding Pages' franchisees.
Garner said that Wedding Pages made a deal with The Knot without telling its regional magazine owners, and now The Knot wants to up the ante for use of the Web site by turning each franchise into commission salespeople for the site.
"The situation is like if you buy an airline ticket to New York, and once you're on the plane the pilot says, 'We're on our way to Pittsburgh and you have to pay extra money if you want to get to New York.' That's basically what's happened."
The two parties are scheduled to give the judge a report by Nov. 27 outlining what agreements have been made, if any. The judge will then make a ruling based on the report.