In a decision that could affect the worldwide franchising community, the U.S. Supreme Court ruled in November to allow manufacturers and franchisors to establish price ceilings for their products or services. The ruling overturned a 1968 doctrine that gave retailers and franchisees the freedom to set their own prices.
"This is the most significant antitrust decision in franchising in the past 20 years," says David J. Kaufmann, senior partner at Kaufmann, Feiner, Yamin, Gildin & Robbins LLP, a New York City law firm that counsels franchisors. "It will enable franchise chains to compete effectively with nonfranchised stores and with chains that [utilize] price-point advertising."
Claiming that varying pricing structures compromises brand uniformity and customer satisfaction, franchisors are now able to ensure consistent price ceilings in all franchised units. But franchisees are concerned that if price ceilings are set too low, they could get priced out of the market.
"Franchisees are worried that this gives franchisors the ability to control prices and thereby the profit margins franchisees can achieve," says Bob Purvin of the American Association of Franchisees & Dealers in San Diego. But the decision presents what Purvin believes could be "a big rain cloud with a very silver lining," possibly encouraging franchisees to band together to gain greater collective negotiating leverage with their franchisors. "The future of franchisees' success is in the area of collective negotiation of franchise agreements and relationships," says Purvin. "And if this case opens a crack in the door to further allow franchisees to engage in collective bargaining, it will ultimately be good for franchisee constituents."