The FTC's efforts to revise its 1979 franchise Rule may finally be heading toward completion. The commissioners are now looking at staff recommendations to expand pre-sale disclosures that franchisors are required to make and to develop a separate rule for business opportunity sales. These differ from franchise sales in that they are of shorter duration and involve no trademark or intellectual property. Some business opportunities-those where a seller provides locations or pre-existing accounts-are now covered under the franchise regulation.
The FTC staff's backing of a new business opportunity rule won praise from Matt Shay, executive vice president of the International Franchise Association. He's enthusiastic about the other recommendations, too, including the addition of new pre-sale disclosures in the Uniform Franchise Offering Circular about franchisor-initiated litigation, confidentiality clauses and trademark-specific franchisee associations. "Some franchisors may have growing pains dealing with the new disclosures, but the staff has done a good job of modernizing the rule," Shay says.
The FTC has engaged in an ongoing effort to amend its Franchise Rule since 1995. But franchisees may not be happy with the final product because it omits much of what is on their wish lists, like banning post-sale encroachment on franchisees, market territory and restrictions on suppliers. But given the 24/7 hours they keep, franchisees won't have much time to vent.
Stephen Barlas is a freelance business reporter who covers the Washington beat for 15 magazines.