Franchise Law Primer
The concept of franchising was developed in the 1950s-60s by such companies as McDonald's and Holiday Inn. The industry has enjoyed steady growth since it's inception and has come to account for an estimated 35-40% of the Gross National Product. Although franchising has become known as a powerful marketing tool it's early history was marked by unscrupulous and greedy franchisors who through misrepresentations and exaggerated claims caused the loss of capital and the devastation of many novice investors. Noting the disparity in the bargaining positions of the franchisor and franchisee the state and federal governments have stepped in to regulate the offering and maintenance of franchise relationships. Most notable is the FTC's Franchising Rule codified under 16 CFR 436.1-.3. This rule establishes a minimum for disclosures a franchisor must make before negotiating a franchise relationship for any business affecting interstate commerce. Although the FTC rule preempts in states whose franchise regulations are less strict the states are free to legislate stricter standards for disclosure and termination. Also, many states have taken further action as to require franchisors to register with the state prior to doing business or offering franchises.
The concept of franchising includes several areas of law both Federal and State. Although the basic relationship is contractual, the complex nature of the relationship and the product being sold has brought franchising under the scrutiny of the following areas of governance; trademark, trade secret, patent, copyright, licensing, agency, antitrust, trade regulation, unfair competition, securities regulation, and contract. Text and cases in each individual area of law are available in a variety of forms including print, on-line services, CD-ROM, and the internet. The format(s) to be used is a function of the quality of research required, time and money available, and the formats convenient to the researcher. (for a more in depth comparison of individual formats please see the pathfinders located in the FPLC IP-Mall)In addition to primary sources of law there are a variety of secondary sources available for the franchising practitioner in helping their clients. These resources are also available in a variety of formats and should be used after first identifying the needs of the client. The benefit of these secondary sources is that they provide an overview of the law of franchising and provide a checklist for a practitioner in assuring all bases are covered.
In first analyzing an issue for a potential franchise client it is important to find out which side of the franchise relationship they will be on.If a business is preparing to grow through a system of franchising it is necessary to insure that all applicable laws and regulations are researched and complied with. This will involve accessing the substantive state and federal laws and regulations through a reliable resource and insure updating.
On the other hand if the client is looking to purchase a franchise the first concern is to gather the options and compare the potential franchisor to competitors and to insure that all necessary disclosures have been made. For this aspect the internet is an excellent starting point for finding franchisors in a particular category and requesting franchise circulars. Following this disclosure legislation at the state and federal level should be researched to insure all information required has been provided.
Trademarks and Unfair Competition, J. McCarthy (Lawyers Co-op /Bancroft Whitney)
Trademark Protection and Practice, J. Gilson (Mathew Bender)
Good leading sources for getting into cases and pointers to other resources. Available in print and on-line or CD-Rom. Non print versions are more expensive than print versions at FPLC but offer quicker updating and easier searching. Personally I prefer the print version in this area for flipping through surrounding sections.
Franchising Advisor, William J. Keating (Clark, Boardman, Callaghan)
Establishing and Operating Under a Franchise Relationship, Martin D. Fern
Additional treatises may be obtained through FPLC on-line card catalog or through Westlaw BIP (books in print database)
I took the FPLC IPSI Franchise class which utilized the Franchising Advisor, This treatise is an excellent resource for franchise issues and is updated annually. Provided are the FTC rule and a breakdown of State legislation. Also includes comparisons to other nations regulations.
Business Franchise Guide, (CCH)
Franchise Law Journal, ABA forum committee on Franchising
These sources are updated periodically and provide information on current legislation, rulings and case law concerning the Franchise Industry. Many cases are provided that are not published elsewhere.
West's integrated research system. Franchising has it's own Topic in the West directory key numbers 1-16 as well as individual areas of law such as trademark, contract, corporations, etc.
These resources provide case law and statutory interpretation of various aspects of franchise issues. Many formats available including print, on-line and CD-Rom. I prefer the West system with key numbers and value added headnotes.
Available in Print, On-line, and CD-Rom these resources provide current legislation and rulings and are updateable. The On-line version is the best for being up to date and ease of searching.
The Internet is a great resource for searching what options are available for Franchising and to find forms, secondary sources, associations, etc. A web search through the available search engines on "franchise" and "franchise law" yielded various results from a few hundred hits to several thousands. The sites were broken into two main groups:
1) Sites providing legal resources and services.
2) Sites providing finding services between potential franchisors and franchisees.
Examples:
Legal sites:
Entrepreneur's Law Center -a collection of statutes, regulations, forms, documents, and scholarly articles on franchise, corporation and securities laws dedicated to helping the entrepreneur grow their business up to and including the public offering stage.
Finding service:
The Franchise Annual - A listing of various Franchise opportunities broken down by category and franchisor. Also provides "services" for finding additional formation.
Franchise Bible: How to Buy a Franchise or Franchise Your Own Business, Keup, Erwin J., 3rd ed., Oasis Printing.
Understanding Franchise Contracts, Hjelmfelt, David C., Pilot Books
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