Underneath the Golden Boy - Robson Hall Faculty of Law

268 Underneath the Golden Boy
and the FTC does not review disclosures . There is also no private right of action
to enforce the FTC Rule; only the FTC can enforce it. 149 The FTC has a broad
range of remedies that it may seek for violations, including injunctions, civil
penalties and orders for the refund of money to franchise purchasers.
The FTC Rule:
requires franchisors to make material disclosures in five categories: (1) the nature of the
franchisor and the franchise system; (2) the franchisor’s financial viability; (3) the costs
involved in purchasing and operating a franchised outlet; (4) the terms and conditions
that govern the franchise relationship; and (5) the names and addresses of current
franchisees who can share their experiences within the franchise system, thus helping the
prospective franchisee to verify independently the franchisor’s claims. In addition,
franchisors must have a reasonable basis and substantiation for any earnings claims made
to prospective franchisees, as well as disclose the basis and assumptions underlying any
such earnings claims. 150
Several states have franchisor registration requirements modeled after
securities legislation; franchisors must register with a state regulatory agency and
obtain approval before they can offer their franchises to prospective
franchisees. 151 Unlike the FTC Rule, some state laws provide a private right of
action to franchisees. 152 As well, several states have enacted franchise
relationship legislation to govern the relationship between the parties after the
franchise agreement is signed. All of these statutes have provisions governing
termination of the franchise agreement; other matters include contract renewal
and transfer, territory encroachment, the purchase of goods and services from
designated sources of supply, franchisees’ right to associate and forum selection.
153
Franchise Rule does not govern relationship issues, the FTC does enforce section 5 of the FTC
Act, which declares unlawful unfair or deceptive practices in or affecting commerce, when
specific criteria are met. However, the unfairness authority criteria generally do not apply to
franchise relationship issues. See also U.S. General Accounting Office, Federal Trade
Commission: Enforcement of the Franchise Rule (Report to Congressional Requesters, July
2001) at 7-9 and 40-45, online: (date accessed:
May 12, 2007).
149
U.S. Federal Trade Commission, supra note 1; U.S. Federal Trade Commission, Guide to the
FTC Franchise Rule Table of Contents, supra note 2.
150
U.S. Federal Trade Commission, supra note 1 at Part IA.
151
Stadfield, supra note 3. There are additional state laws that may apply; for example, state
‘business opportunity’ statutes designed to encompass distribution arrangements accompanied
by representations or promises, such as vending machine routes.
152
Stadfield, supra note 3.
153
U.S. General Accounting Office, supra note 4 at 9 and 43-45. The GAO identified 17 states
that have enacted franchise relationship legislation; Iowa’s is recognized as being the most
comprehensive.