What legal issues does franchising face as it approaches 2000? To find out, we asked those with their fingers on the pulse of the industry: franchise attorneys Rochelle B. Spandorf, a partner with Los Angeles law firm Foley & Lardner, and Lewis G. Rudnick, a partner with Chicago franchise law firm Rudnick & Wolfe, who gave us the lowdown on the issues.
- Web encroachment. When you begin retailing over the Internet, you may find yourself encroaching on someone else's exclusive territory, says Spandorf. "[Franchisors] may need to have franchisees who have exclusive territorial protection sign an amendment to their contracts," she says, "and it may cause some difficulty in franchise relationships."
- New market encroachment. "A few cases have cropped up that raise questions about whether the franchisee has a claim for bad faith when he or she feels a franchisor has put a new unit too close to an existing unit or when it sells in another distribution channel [such as supermarkets]," says Rudnick. "The system expansion conflict issue will probably be resolved by developing procedures to avoid conflict, rather than through litigation."
- Mandatory earnings claims. The North American Securities Administrators Association has been discussing implementing a mandatory earnings claim disclosure in regulatory states, although it's questionable whether the Federal Trade Commission will adopt the policy nationwide. "I think this attention on earnings claims will educate franchisors so they don't necessarily expose themselves to greater liability by making the claims," says Spandorf. "People don't realize the scope, breadth and creativity that can be applied to the creation of an earnings claim."
- Less state regulation. "It does not appear likely that there will be much more state legislation passed to regulate franchising, either in sales or relationships," says Rudnick. In fact, she adds, "There is a possibility that some of the existing state laws might be modified to be less restrictive." States with bills pending that may minimize regulation include Illinois and Iowa.