Underneath the Golden Boy - Robson Hall Faculty of Law

Franchise Legislation and Associations Around the World 363
restrictions on sales; and (6) rights to renew and terminate the franchise. 49
However, following an amendment to the FTC Rule, franchisors will eventually
no longer be permitted to use the UFOC. As of 1 July 2007, franchisors may
follow the amended Rule, or they may continue their current practice of
complying with the original Rule or individual state franchise disclosure laws
that require a UFOC; but by 1 July 2008, they will be required to follow the
amended Rule only. 50
The new franchise Rule requires franchisors to provide all potential
franchisees with a disclosure document containing 23 specific items of
information about the offered franchise, its officers, and other franchisees.
Required disclosure topics include: the franchise’s litigation history, past and
current franchisees and their contact information, any exclusive territory that
comes with the franchise, assistance the franchisor provides franchisees, and the
cost of purchasing and starting up a franchise. If a franchisor makes
representations about the financial performance of the franchise, this topic also
must be covered, as well as the material basis backing up those representations. 51
Although the amended Rule closely tracks the UFOC guidelines, in some
instances it requires more extensive disclosures, such as with regards to
franchisee-franchisor relationships. For instance, the amended Rule requires
more extensive disclosure on lawsuits the franchisor has filed against the
franchisees; the franchisor’s use of so called “confidentiality clauses” in lawsuit
settlements; a warning when there is no exclusive territory; an explanation of
what the term “renewal” means for each franchise system; and trademarkspecific
franchisee associations. In a few instances, the amended Rule requires
less than the UFOC guidelines. For instance, it does not require disclosure of so
called “risk factors,” franchise broker information, or extensive information
about every component of any computer system that a franchisee must
purchase. 52
The International Franchise Association (“IFA”), founded in 1960, was
established to build and maintain a favorable economic and regulatory climate
49
Manitoba Law Reform Commission, “Consultation Paper on Franchise Legislation,” online:
Current Projects at 36.
50
Federal Trade Commission, “FTC Issues Update Franchise Rule,” online:
.
51
Ibid.
52
Ibid.