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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 1717 Introduced in House (IH)]

104th CONGRESS
  1st Session
                                H. R. 1717

 To establish minimum standards of fair conduct in franchise sales and 
       franchise business relationships, and for other purposes.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                              May 25, 1995

 Mr. LaFalce introduced the following bill; which was referred to the 
                       Committee on the Judiciary

_______________________________________________________________________

                                 A BILL

 
 To establish minimum standards of fair conduct in franchise sales and 
       franchise business relationships, and for other purposes.
    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Federal Fair 
Franchise Practices Act''.
    (b) Table of Contents.--

Sec. 1. Short title; table of contents.
Sec. 2. Findings and purpose.
Sec. 3. Franchise sales practices.
Sec. 4. Unfair franchise practices.
Sec. 5. Standards of conduct.
Sec. 6. Franchisee associations.
Sec. 7. Acquisition of franchise systems.
Sec. 8. Franchisor encroachment.
Sec. 9. Procedural fairness.
Sec. 10. Actions by private persons.
Sec. 11. Actions by state attorneys general.
Sec. 12. Effect on other law.
Sec. 13. Census data on franchise businesses.
Sec. 14. Scope and applicability.
Sec. 15. Definitions.
SEC. 2. FINDINGS AND PURPOSE.

    (a) Findings.--The Congress makes the following findings:
            (1) Franchise business relationships represent a large and 
        growing segment of the nation's retail and service businesses 
        and are rapidly replacing more traditional forms of small 
        business ownership in the American economy.
            (2) Franchise relationships involve a joint enterprise 
        between the franchisor and franchisees in which each party has 
        a vested interest in the franchised business.
            (3) Most prospective franchisees lack bargaining power and 
        generally invest substantial amounts to obtain a franchise 
        business when they are unfamiliar with operating a business, 
        with the business being franchised and with industry practices 
        in franchising.
            (4) Many franchises reflect a profound imbalance of 
        contractual power in favor of the franchisor, and fail to give 
        due regard to the legitimate business interests of the 
        franchisee, as a result of the franchisor reserving pervasive 
        contractual rights over the franchise relationship.
            (5) Franchisees may suffer substantial financial losses 
        when the franchisor does not provide truthful or complete 
        information regarding the franchise opportunity, or where the 
        franchisor does not act in good faith or
         with due care in the performance of the franchise contract.
            (6) Traditional common law doctrines have not evolved 
        sufficiently to protect franchisees adequately from fraudulent 
        or unfair practices in the sale and operation of franchise 
        businesses, and significant contractual and procedural 
        restrictions have denied franchisees viable legal recourse to 
        protect their interests in such businesses.
    (b) Purpose.--It is the purpose of this Act to promote greater 
fairness and equity in franchise relationships, to protect prospective 
franchises from fraudulent sales practices, to establish minimum 
standards of conduct in franchise practices, to strengthen private 
remedies against fraudulent or unlawful actions, to provide the public 
with more reliable information regarding franchising, and to provide to 
consumers the greater benefits which would flow from more equitable 
franchise relationships.

SEC. 3. FRANCHISE SALES PRACTICES.

    (a) In General.--In connection with the advertising, offering, 
licensing, contracting, sale or other promotion in or affecting 
commerce of any franchise, or any relationship which is represented 
either orally or in writing to be a franchise, it shall be unlawful for 
any person, partnership or corporation--
            (1) to employ a device, scheme, or artifice to defraud;
            (2) to engage in an act, practice, course of business or 
        pattern of conduct which operates or is intended to operate as 
        a fraud or deceit upon any person;
            (3) to obtain money or property, or assist others to obtain 
        money or property, by means of any untrue statement of a 
        material fact, any omission to state a material fact, or any 
        omission to state a material fact necessary in order to make 
        the statements made, in the light of the circumstances under 
        which they are made, not misleading; or
            (4) to discriminate among prospective franchisees on the 
        basis of race, sex, religion, disability or national origin--
                    (A) in the solicitation, offering or sale of any 
                franchise opportunity, except that, and then only to 
                the extent that, any discrimination between franchisees 
                is reasonable and is related to a program under which 
                franchises are made available to a class of persons who 
                may have been denied franchise opportunities in the 
                past based on suspect classifications including race, 
                sex, religion, disability or national origin; or
                    (B) in the selection of any site or location for a 
                franchise business; or
            (5) to represent or imply in any manner whatsoever that a 
        franchise has been reviewed, endorsed, recommended or approved 
        by the United States or any agency or officer thereof.
    (b) Misrepresentations in Required Disclosure.--
            (1) In connection with any disclosure document, notice or 
        report required by law or regulation, it shall be unlawful for 
        any franchisor, subfranchisor or franchise broker, either 
        directly or indirectly through any officer, employee, agent, 
        representative or attorney--
                    (A) to make or cause to be made an untrue statement 
                of material fact, omit to state a material fact, or 
                omit to state a material fact necessary in order to 
                make the statements made, in the light of the 
                circumstances under which they are made, not 
                misleading;
                    (B) to fail to furnish any prospective franchisee 
                with all information required to be disclosed and at 
                the time and in the manner required; and
                    (C) to make any claim or representation to a 
                prospective franchisee, whether orally or in writing, 
                which is inconsistent with or contradicts any 
                information provided to the prospective franchisee in 
                any required disclosure.
            (2) For purposes of this subsection, the term disclosure 
        document means either the disclosure statement
         required by the Federal Trade Commission in Trade Regulation 
Rule 436 (16 CFR 436) as it may be amended, or an offering circular 
prepared in accordance with Uniform Franchise Offering Circular 
guidelines as adopted and amended by the North American Securities 
Administrators Association, Inc., or its successor.
    (c) Misrepresentation of Earnings and Failures.--For purposes of 
this section, an untrue statement of material fact shall include any 
statement of fact which has the intent or effect of misrepresenting the 
profitability of a franchise opportunity, the rate of success of 
franchises or franchisees associated with a franchise opportunity, or 
the rate of success of franchises generally.
    (d) Burden of Proof.--For purposes of this section, the burden of 
proof shall be on the franchisor to show that any claim, statement or 
representation, either made orally or in writing as part of an 
advertisement, sales presentation, marketing document or required 
disclosure in connection with the offering or sale of a franchise, is 
accurate and not misleading, and that such claim, statement or 
representation had a reasonable basis in fact at the time it was made.
    (e) Effective Date.--The requirements of this section shall take 
effect sixty days after the date of enactment of this Act and shall 
apply only to actions, practices, disclosures and statements occurring 
on or after such date.

SEC. 4. UNFAIR FRANCHISE PRACTICES.

    (a) Deceptive and Discriminatory Practices.--In connection with the 
operation of a franchise system or the performance, enforcement, 
renewal and termination of any franchise agreement, or of an agreement 
for any relationship which is represented either orally or in writing 
to be a franchise, it shall be unlawful for a franchisor or 
subfranchisor, either directly or indirectly through any officer, 
employee, agent, representative or attorney--
            (1) to engage in an act, practice, course of business, or 
        pattern of conduct which operates or is intended to operate as 
        a fraud or deceit upon any person;
            (2) to employ unlawful or deceptive acts or practices in 
        the operation of the franchisor's enterprise or method of 
        business; or
            (3) to discriminate among franchisees on the basis of race, 
        sex, religion, disability or national origin.
    (b) Termination Without Good Cause.--
            (1) It shall be unlawful for a franchisor or subfranchisor, 
        either directly or indirectly through any officer, employee, 
        agent or attorney, to terminate or otherwise cancel a franchise 
        prior to its expiration without good cause for such termination 
        or cancellation.
            (2) For purposes of this subsection, good cause shall exist 
        only where--
                    (A) the franchisee fails to comply with a material 
                provision of the franchise agreement after notice 
                specifying the default and a thirty-day period to cure 
                the default, or if the default can not be cured within 
                thirty days, the franchisee fails to initiate within 
                thirty days and diligently pursue substantial 
                continuing action to cure the default;
                    (B) the franchisee, without the requirement of 
                notice and opportunity to cure--
                            (i) voluntarily abandons the franchise 
                        business, except that loss or termination of a 
                        leasehold for the franchise business prior to 
                        the term of a franchise agreement by reason of 
                        eminent domain, foreclosure sale, natural 
                        disaster or other termination not the fault of 
                        the franchisee shall not be considered 
                        abandonment by the franchisee;
                            (ii) is convicted of a crime that 
                        substantially impairs the good will associated 
                        with the franchisor's trade mark, service mark, 
                        trade name, logotype, advertising or other 
                        commercial symbol;
                            (iii) repeatedly fails to comply with the 
                        same material provision of the franchise 
                        agreement, where the enforcement of such 
                        provision is substantially similar to 
                        enforcement of that provision with other 
                        franchisees; or
                            (iv) operates the franchised business in a 
                        manner that creates an imminent danger to 
                        public health or safety; and
                    (C) the franchisor, whether or not as a result of 
                bankruptcy or reorganization, withdraws from a 
                marketing area, provided the franchisor pays the 
                franchisee reasonable compensation for damages incurred 
                from the shortened term of the franchise, or agrees not 
                to enforce any contractual prohibition against the 
                franchisee continuing to engage in the business at the 
                licensed location, except as provided in subsection 
                (d)(3) of this section.
    (d) Mandatory Sourcing of Supplies.--
            (1) It shall be unlawful for any franchisor or 
        subfranchisor, either directly or indirectly through any 
        officer, employee, agent, representative or attorney, to 
        prohibit a franchisee from obtaining equipment, fixtures, 
        supplies or services sued in the establishment or operation of 
        the franchised business from sources of the franchisee's 
        choosing, except that such goods or services may be required to 
        meet uniform system-wide quality standards which are not 
        arbitrarily promulgated or enforced by the franchisor.
            (2) This subsection shall not apply to reasonable 
        quantities of inventory of goods or services (including display 
        and sample items) that the franchisee is required to obtain 
        from the franchisor and/or its affiliate(s), where such goods 
        or services are integrally related to a trademark, trade name, 
        trade secret or patent owned by or licensed to the franchisor 
        or its affiliate(s), provided the franchisor shall not withhold 
        a franchisee's right to obtain such goods and services without 
        providing a notice of default and a thirty-day period to cure 
        the default.
    (e) Post-Term Restrictions on Competition.--
            (1) A franchisor shall not, either directly or indirectly 
        through any officer, employee, agent, representative or 
        attorney, prohibit, or enforce a prohibition against, any 
        franchisee from engaging in any business at any location after 
        expiration of a franchise or after termination of the franchise 
        prior to its expiration for good cause.
            (2) This subsection shall not apply to enforcement of any 
        such prohibition where the franchisor, not less than ten days 
        before the effective date of such termination or expiration, 
        offers in writing to purchase the assets of the franchised 
        business for its fair market value as a going concern, provided 
        that--
                    (A) the fair market value of such business be 
                determined as if it were to be resold or renewed for a 
                period of years equal to the contract term being 
                offered by the franchisor for new or renewed 
                franchises;
                    (B) the fair market value of such business is 
                ascertained by an impartial appraiser, whose 
                appointment is acceptable to both parties; and
                    (C) any forgiveness of debt shall not be considered 
                a purchase of assets by the franchisor for purposes of 
                this section; and
            (3) Nothing in this subsection shall be interpreted to 
        prohibit enforcement of any provisions of a franchise contract 
        obligating a franchisee after expiration or termination of a 
        franchise--
                    (A) to cease or refrain from using a trademark, 
                trade secret or other intellectual property owned by 
                the franchisor or its affiliate, except that the 
                existence of language in the franchise agreement 
                purporting to determine ownership of a trademark, trade 
                secret or other intellectual property shall not be 
                binding upon any court or forum for purposes of this 
                paragraph, but may be considered by such court or forum 
                as evidence of such ownership; or
                    (B) to alter the appearance of the premises and the 
                manner of operation of the franchised business to avoid 
                any likelihood of confusion as to the affiliation of 
                the business with its former franchisor.
SEC. 5. STANDARDS OF CONDUCT.

    (a) Duty of Good Faith.--
            (1) A franchise contract imposes on each party thereto a 
        duty to act in good faith in its performance and enforcement.
            (2) As used in this subsection, a duty of good faith shall 
        obligate a party to a franchise to do nothing that will have 
        the effect of destroying or injuring the right of the other 
        party to receive the fruits of the contract and to do 
        everything required under the contract to accomplish such 
        purpose.
    (b) Duty of Due Care.--
            (1) A franchise relationship imposes on the franchisor a 
        duty of due care. Unless a franchisor represents that it has 
        greater skill or knowledge in its undertaking with its 
        franchisees, or conspicuously disclaims that it has skill or 
        knowledge, the franchisor is required to exercise the skill and 
        knowledge normally possessed by franchisors in good standing in 
        the same or similar types of business.
            (2) For purposes of this subsection--
                    (A) the phrase ``skill or knowledge'' means 
                something more than the mere minimum level of skill or 
                knowledge required of any person engaging in a service 
                or business and involves a special level of expertise--
                            (i) which is the result of acquired 
                        learning and aptitude developed by special 
                        training and experience in the business to be 
                        conducted under the franchise, or the result of 
                        extensive use and experience with the products 
                        or services or the operating system of the 
                        franchise;
                            (ii) which is the result of experience in 
                        organizing a franchise system and in providing 
                        training, assistance and services to 
                        franchisees; and
                            (iii) which a prospective franchisee would 
                        expect in reasonable reliance on the written 
                        and oral commitments and representations of the 
                        franchisor; and
                    (B) a franchisor shall be permitted to show that it 
                contracted for, hired or purchased the expertise 
                necessary to comply with the requirements of this 
                subsection and that such expertise was incorporated in 
                the franchise or communicated or provided to the 
                franchisee.
            (3) The requirement of this subsection may not be waived by 
        agreement or by conduct, but the franchisor may limit in 
        writing the nature and scope of its skill and knowledge, and of 
        its undertaking with a prospective franchisee, provided that no 
        inconsistent representation, whether written or oral, is made 
        to the prospective franchisee.
    (c) Limited Fiduciary Duty.--
            (1) Without regard to whether a fiduciary duty is imposed 
        generally on the franchisor by virtue of a franchise 
        relationship, the franchisor owes a fiduciary duty to its 
        franchisees and is obligated to exercise the highest standard 
        of care for franchisee interests where the franchisor--
                    (A) undertakes to perform bookkeeping, collection, 
                payroll or accounting services on behalf of the 
                franchisee; or
                    (B) requires franchisees to make contributions to 
                any pooled advertising or promotional fund to be 
                administered or supervised by the franchisor.
            (2) While not limiting the ability of any court to identify 
        other circumstances for which a fiduciary duty may also exist, 
        this subsection does not create or extend a fiduciary duty by 
        implication to other aspects of a franchise.

SEC. 6. FRANCHISEE ASSOCIATIONS.

    (a) Right of Association.--It shall be unlawful for any franchisor 
or subfranchisor, either directly or indirectly through any officer, 
employee, agent representative or attorney--
            (1) to hinder or prohibit, directly or indirectly,
         the free association of franchisees for any lawful purpose, 
including the formation of or participation in any trade association 
made up of franchisees; and
            (2) to discriminate against a franchisee by imposing 
        requirements not imposed on other similarly situated 
        franchisees or otherwise retaliate, directly or indirectly, 
        against any franchisee for membership or participation in a 
        franchisee association.
    (b) Antitrust Exemption.--The Clayton Antitrust Act (15 U.S.C. 12 
et seq.) is amended by adding after section 27, the following new 
section:

       ``antitrust laws not applicable to franchisee associations

    ``Sec. 28. Nothing contained in the antitrust laws shall be 
construed to prohibit the existence and operation of associations of 
owners of franchise businesses, instituted for the purposes of mutual 
help, and not having capital stock or conducted for profit, or to 
prohibit or restrain individual members of such associations from 
lawfully carrying out the legitimate objects thereof; nor shall such 
associations, or the members thereof, be held or construed to be 
illegal combinations or conspiracies in restraint of trade, under the 
antitrust laws.''.

SEC. 7. ACQUISITION OF FRANCHISE SYSTEMS.

    (a) In General.--Whenever all or a major portion of the franchise 
system is acquired by another person through purchase, merger, 
consolidation, acquisition of assets or through the bankruptcy court, 
any foreclosure or judicial order, or otherwise, the person acquiring 
the franchise system shall assume the obligations agreed to by the 
predecessor franchisor in contracts with franchisees and the 
franchisees shall be entitled to hold such transferee legally 
responsible for the duties and responsibilities of the predecessor 
franchisor.
    (b) Mutual Release of Obligations.--Unless the person acquiring a 
franchise system expressly undertakes such obligations, or acts in good 
faith to renegotiate such obligations with franchisees, the franchisees 
shall be entitled to reject their contractual duties and 
responsibilities to the franchisor, including any noncompetition 
covenant and post-term obligations, provided that upon such rejection, 
the franchisees cease from using the franchisor's trademarks, logos and 
other express identification, and otherwise alter the appearance of the 
premises and the manner of operation of the franchise business to avoid 
any likelihood of confusion as to the affiliation of the business with 
the franchise system.

SEC. 8. FRANCHISOR ENCROACHMENT.

    (a) In General.--A franchisor shall not grant or license a new 
franchise, or otherwise establish a new outlet or one or more points of 
sale of goods or services similar to that offered by a franchisee and 
identified by the same trade name, trademark, logotype, commercial 
system or advertising used by a franchisee in unreasonable proximity to 
an outlet or business owned or licensed to such franchisee so that the 
effect or probable effect of granting or establishing such new 
franchise, outlet or point(s) of sale is to cause a reduction in gross 
sales of the existing franchise.
    (b) Liability for Monetary Damages.--Where a franchisor has granted 
a new franchise or established a new outlet or point of sale in such 
unreasonable proximity to an existing franchise, the owner of the 
existing franchise shall have cause of action for monetary damages, 
including, but not limited to, actual loss of income resulting from the 
reduction in gross sales caused by the opening and operation of the new 
franchise, outlet or point of sale, anticipated loss of income caused 
by the continued operation of such franchise, outlet or point of sale 
and costs of litigation and reasonable attorney's fees.
    (c) Exceptions From Liability.--This section shall not apply 
where--
            (1) the reduction in gross sales for an existing franchise 
        caused by the opening and operation of the new franchise, 
        outlet or one or more points of sale, based on a comparison to 
        annual gross sales from the same franchise location during the 
        twelve-month period immediately preceding the opening of the 
        new franchise, outlet or point(s) of sale, is determined to 
        have been
         less than 5 percent during the first twelve months following 
the opening of such new franchise, outlet or points of sale;
            (2) the franchisor, prior to offering the new franchise to 
        another owner, has provided the existing franchisee a right of 
        first refusal for the new franchise location on, at least, the 
        same terms and conditions available to the other potential 
        franchisee, or, if the new location is an outlet to be owned by 
        the franchisor, or one or more points of sale to be owned or 
        controlled by the franchisor, the existing franchisee is 
        provided a right of first refusal on the terms and conditions 
        that would ordinarily be offered to a franchisee or other 
        licensee for similarly situated outlet, location or point of 
        sale;
            (3) the franchisor does not offer a right of first refusal, 
        but agrees to compensate the existing franchisee or franchisees 
        for market sales diverted by the opening of a new franchise, 
        outlet or points of sale, provided that the franchisor and 
        franchisee agree upon the proper amount of such compensation to 
        be provided, or, if the franchisor and franchisee cannot agree 
        to the proper amount of such compensation--
                    (A) each party shall appoint an independent 
                appraiser to determine the amount of such compensation;
                    (B) if the independent appraisers are unable to 
                agree on the appropriate amount of such compensation, 
                the independent appraisers shall appoint a third 
                appraiser to determine the level of compensation; and
                    (C) the determination of the independent appraiser 
                shall be final and binding; and
            (4) the franchisor, prior to granting or licensing a new 
        franchise or opening a new outlet or one or more points of 
        sale--
                    (A) provides reasonable notice to all franchisees 
                in proximity of the proposed franchise, outlet or point 
                of sale to determine if a franchisee objects to the 
                proposed franchise, outlet or point of sale as having 
                an adverse impact on sales of an existing franchise; 
                and
                    (B) agrees that, upon receiving an objection in 
                writing from an existing franchisee, the matter will be 
                submitted for resolution by an impartial arbitrator, 
                provided--
                            (i) the selection of an arbitrator and the 
                        time and location of any arbitration proceeding 
                        are determined by agreement of the parties or 
                        their counsel;
                            (ii) the burden of proof is on the 
                        franchisor to show that the market area of the 
                        proposed franchise, outlet or point of sale is 
                        not being served by any existing franchise and 
                        that the proposed franchise, outlet or point of 
                        sale will not unduly reduce sales of existing 
                        franchises; and
                            (iii) the decision of the arbitrator shall 
                        be binding, to the effect that if the 
                        arbitrator rules against the franchisor, the 
                        proposed franchise, outlet or point of sale 
                        cannot be granted or opened.
    (d) Burden of Proof.--With regard to any civil action brought under 
subsection (a)--
            (1) the franchisee shall have the burden of proof to 
        document the amount of any reduction in gross sales and income 
        resulting from the opening and operation in unreasonable 
        proximity to an existing franchise of the new franchise, outlet 
        or point of sale; and
            (2) the franchisor shall have the burden of proof to show 
        that, or the extent to which, a decline in sales of an existing 
        franchise or franchises occurred for reason other than the 
        opening and operation in unreasonable proximity to the existing 
        franchise of the new franchise, outlet or point of sale.
    (e) Filing Limitation.--Notwithstanding the provisions of section 
10(a)(2) of this Act, any civil action brought under this section shall 
be filed within eighteen months following the
 opening and operation of the new franchise, outlet or point of sale.

SEC. 9. PROCEDURAL FAIRNESS.

    (a) It shall be unlawful for any franchisor or subfranchisor, 
either directly or indirectly through any officer, employee, agent, 
representative or attorney to--
            (1) require any term or condition in a franchise agreement, 
        or in any agreement ancillary or collateral to a franchise, 
        which directly or indirectly violates any provision of this 
        Act;
            (2) require a franchisee to assent to any disclaimer, 
        waiver, release, stipulation or other provision which would 
        purport--
                    (A) to relieve any person from a duty imposed by 
                this Act, except as part of a settlement of an bona 
                fide dispute; or
                    (B) to protect any person against any liability to 
                which he would otherwise be subject under the Act by 
                reason of willful misfeasance, bad faith, or gross 
                negligence in the performance of duties, or by reason 
                of reckless disregard of obligations and duties under 
                the franchise agreement; or
            (3) require a franchisee to assent to any waiver, release, 
        stipulation or other provision, either as part of any agreement 
        or document relating to the operation of a franchise business, 
        in any agreement or document relating to the termination, 
        cancellation, forfeiture, repurchase or resale of a franchise 
        business or as a condition for permitting a franchisee to leave 
        the franchise system, which would purport to prevent the 
        franchisee from making any oral or written statement relating 
        to the franchise business, to the operation of the franchise 
        system or to the franchisee's experience with the franchise 
        business; except that, and only to the extend that, such waiver 
        or release is required as part of the settlement of a bona fide 
        dispute and relates only to the terms of such settlement and to 
        the negotiation of such settlement.
    (b) Any condition, stipulation, provision, or term of any franchise 
agreement, or any agreement ancillary or collateral to a franchise, 
which would purport to waive or restrict any right granted under this 
Act shall be void and unenforceable.
    (c) No stipulation or provision of a franchise agreement or of an 
agreement ancillary or collateral to a franchise shall--
            (1) deprive a franchisee of the application and benefits of 
        this Act or of any Federal law or the law of the State in which 
        the franchisee's principal place of business is located;
            (2) deprive a franchisee of the right to commence an action 
        (or, if the franchise provides for arbitration, initiate an 
        arbitration) against the franchisor for violation of the Act, 
        or for breach of the franchise agreement or of any agreement or 
        stipulation ancillary or collateral to the franchise, in a 
        court (or arbitration forum) in the state of the franchisee's 
        principal place of business; or
            (3) exclude collective action by franchisees to settle like 
        disputes arising from violation of this Act either by civil 
        action or arbitration.
    (d) Compliance with this Act or with an applicable State franchise 
law is not waived, excused or avoided, and evidence of violation of 
this Act or of such State law shall not be excluded, by virtue of an 
integration clause, any provision of a franchise agreement or an 
agreement ancillary or collateral to a franchise, the parol evidence 
rule, or any other rule of evidence purporting to exclude consideration 
of matters outside the franchise agreement.

SEC. 10. ACTIONS BY PRIVATE PERSONS.

    (a)(1) Any person injured by a violation of any provision or 
standard of this Act shall have a right of action for all damages 
caused by the violation, including costs of litigation and reasonable 
attorney's fees, against any person found to be liable for such 
violation.
    (2) An action may be brought, without regard to the amount in 
controversy, in any United States district court, in any State court, 
or in any other court of competent
 jurisdiction, before the later of:
            (A) Five years after the date on which the violation 
        occurred.
            (B) Three years after the date on which the violation was 
        discovered or should have been discovered through exercise of 
        reasonable diligence.
    (b) Any person injured by a violation of this Act, or threatened 
with injury by an impending violation of this Act, may bring an action 
in a United States district court, in any State court or in any other 
court of competent jurisdiction to obtain a declaratory judgment that 
an act or conduct constitutes or would constitute a violation of this 
Act and to enjoin a person who has violated, is violating, or who is 
otherwise likely to violate any provision of this Act. In such actions, 
the court may issue a temporary restraining order or preliminary 
injunction to protect the public interest by halting a recurring or 
likely violation of this Act, prior to a final determination on the 
merits, in conformity with the principles governing the granting of 
preliminary relief in other civil actions, except that no showing of 
special or irreparable damage to such person shall have to be made.
    (c)(1) In any action brought under subsections (a) or (b) of this 
section, a court shall have the power to interpret any benefit 
conferred, duty imposed, or restriction applied in favor of or against 
any party to a franchise agreement as reciprocal and equally applicable 
to the other party to the agreement and to provide an identical or 
similar benefit, impose an identical or similar duty, or apply an 
identical or similar restriction on such other party to the agreement, 
provided that such reciprocal application is consistent with the laws 
of the State in which the franchise business is located.
    (2) A court shall apply any provision contained in a franchise 
agreement which purports to restrict the ability of one party to 
compete with the other party during the term of the franchise agreement 
reciprocally to the extent deemed fair and appropriate.
    (d)(1) Except as otherwise provided in paragraph (2) of this 
subsection, nothing contained in this Act shall limit the right of a 
franchisor and a franchisee to agree to arbitration, mediation or other 
nonjudicial resolution of a dispute, either in advance or after a 
dispute arises, provided that the standards and protections applied in 
any binding nonjudicial procedure agreed to by the parties are not less 
than the requirements set forth in this Act.
    (2) Any stipulation or provision of a franchise agreement requiring 
use of arbitration or other nonjudicial resolution to resolve disputes 
arising under the agreement shall not apply to bar an action brought in 
a United States district court or in any other court of competent 
jurisdiction pursuant to this section involving a request for damages 
and/or equitable relief for an alleged violation of any provision of 
this Act, except where such request is frivolous or insubstantial. A 
determination of whether a request for damages and/or equitable relief 
is frivolous or insubstantial shall be made by the court in which the 
action is filed at any hearing at which all parties are present or 
represented by counsel.
    (e) The private rights provided in this section are in addition to, 
and no in lieu of other rights or remedies created by Federal or State 
law or regulation.

SEC. 11. ACTIONS BY STATE ATTORNEYS GENERAL.

    (a) Whenever an attorney general of any State has reason to believe 
that the interests of the residents of that State have been or are 
being threatened or adversely affected because any person has engaged 
or is engaging in a pattern or practice which violates any provision of 
this Act, the State, as parens patriae, may bring a civil action on 
behalf of its residents in an appropriate district court of the United 
States to enjoin such violations, to obtain damages, restitution, or 
other compensation on behalf of residents of such State or to obtain 
such further and other relief as the court may deem appropriate.
    (b) For purposes of bringing any civil action under subsection (a), 
nothing in this Act shall prevent an attorney general from exercising 
the powers conferred on the attorney general by the laws of such State 
to conduct investigations or to administer oaths or affirmations or to 
compel the
 attendance of witnesses or the production of documentary and other 
evidence.
    (c) Any civil action brought under subsection (a) in a district 
court of the United States may be brought in the district in which the 
defendant is found, is an inhabitant, or transacts business or wherever 
venue is proper under section 1391 of title 28, United States Code. 
Process in such action may be served in any district in which the 
defendant is an inhabitant or in which the defendant may be found.
    (d) Nothing contained in this section shall prohibit an authorized 
State official from proceeding in State court on the basis of an 
alleged violation of any civil or criminal statute of such State.

SEC. 12. EFFECT ON OTHER LAW.

    (a) This Act preempts State law only to the extent that State law 
is inconsistent with any provision of this Act, in terms of providing 
less protection to the franchisee than provided by this Act, and then 
only to the extent of such inconsistency.
    (b) Nothing in this Act shall be interpreted--
            (1) to alter or relieve any franchisor or subfranchisor 
        from the obligation to comply with the laws of any State, 
        except to the extent that such laws are inconsistent with any 
        provision of this Act; or
            (2) to preclude a State from enacting any law or regulation 
        that affords a greater level or broader range of protections to 
        franchisees.

SEC. 13. CENSUS DATA ON FRANCHISE BUSINESSES.

    (a) The Bureau of the Census of the Department of Commerce 
(hereafter, the ``Bureau of the Census'') shall include in its Business 
Census for 1997, and in each such succeeding census, statistical 
information on the number, ownership and operation of franchise 
businesses.
    (b) The Bureau of the Census shall--
            (1) consult with the Federal Trade Commission to establish 
        criteria and procedures to identify franchise businesses to be 
        included in the Business Census; and
            (2) consult with the Congress, the Federal Trade Commission 
        and other interested organizations in establishing categories 
        of statistical information to be collected in the Business 
        Census relating to the number, ownership and operation of 
        franchise businesses.
    (c) Not later than two hundred eighty days after the date of 
enactment of this section, the Bureau of the Census shall submit a 
report to the Congress which shall describe the most cost effective and 
accurate means to gather and present the statistical information 
required to be collected pursuant to this section and identify the 
categories of data relating to franchise businesses to be included in 
the Business Census.

SEC. 14. SCOPE AND APPLICABILITY.

    Except as otherwise provided, the requirements of this Act shall 
apply to franchise agreements entered into, amended, exchanged or 
renewed after the date of enactment of this Act.

SEC. 15. DEFINITIONS.

    For purposes of this Act:
            (1) The term ``advertisement'' means a communication 
        circulated generally by mail, or print media or electronic 
        media, or otherwise disseminated generally to the public, in 
        connection with an offer or sale of a franchise.
            (2) The term ``affiliate'' means a natural or legal person 
        controlling, controlled by, or under common control with 
        franchisor.
            (3) The term ``franchise'' means--
                    (A) any continuing commercial relationship created 
                by a contract or agreement, either expressed or 
                implied, whether oral or written, where--
                            (i) one person (the franchisor) grants to 
                        another person (the franchisee) the right to 
                        engage in the business of offering, selling or 
                        distributing goods or services, in which--
                                    (I) the goods and services offered, 
                                sold or distributed by the franchisee 
                                are substantially associated with the 
                                trademark, service mark, trade name, 
                                logotype, advertising, or other 
                                commercial symbol owned or used by the
                                 franchisor (hereafter ``the 
franchisor's mark''); or
                                    (II) the franchisee must conform to 
                                quality standards established by the 
                                franchisor with respect to the goods 
                                and services being distributed, and 
                                operate under a name that includes, in 
                                whole or in part, the franchisor's 
                                mark;
                            (ii) the franchisor--
                                    (I) communicates to the franchisee 
                                knowledge, experience, expertise, 
                                knowhow, trade secrets or other non-
                                patented information, regardless of 
                                whether it is proprietary or 
                                confidential;
                                    (II) provides significant 
                                assistance to the franchisee in areas 
                                relating to the franchisee's method of 
                                operation; or
                                    (III) exercises significant 
                                controls over the franchisee's method 
                                of operation of the business; and
                            (iii) the franchisee, as a condition for 
                        obtaining or commencing operation of a 
                        franchise, is required to make, or to commit to 
                        make, payment or other consideration to the 
                        franchisor, or an affiliate of the franchisor, 
                        other than payment for commercially reasonable 
                        quantities of goods for resale at a bona fide 
                        wholesale price;
                    (B) a subfranchise; or
                    (C) any commercial relationship entered into in 
                reasonable reliance on representations, either oral or 
                written, that the criteria of paragraph (A) of this 
                subsection will be met.
            (4) The term ``franchise broker'' means a person, other 
        than a franchisor or franchisee, who sells, offers for sale or 
        arranges for the sale of a franchise.
            (5) The term ``franchisee'' means a person to whom a 
        franchise is granted.
            (6) The term ``franchisor'' means a person who grants a 
        franchise or a subfranchise.
            (7) The term ``good faith'' means honesty in fact and the 
        observance of reasonable standards of fair dealing in the 
        trade.
            (8) The terms ``material'' and ``material fact'' includes--
                    (A) any fact, circumstance, or set of conditions 
                which a reasonable franchisee or a reasonable 
                prospective franchisee would consider important in 
                making a significant decision relating to entering 
                into, remaining in, or abandoning a franchise 
                relationship; and
                    (B) any fact, circumstance, or set of conditions 
                which has, or may have, any significant financial 
                impact on a franchisor, franchisee or a prospective 
                franchisee.
            (9) The term ``offer'' or ``offering'' means any effort to 
        offer or to dispose of, or solicitation of an offer to buy, a 
        franchise or interest in a franchise for value.
            (10) The term ``outlet'' means a place of business, 
        temporary or permanent, fixed or mobile, from which products or 
        services are offered for sale.
            (11) The term ``person'' means an individual or any other 
        legal or commercial entity.
            (12) The term ``State'' means a State, the District of 
        Columbia, and any territory or possession of the United States.
            (13) The term ``subfranchise'' means a contract or an 
        agreement by which a person pays a franchisor for the right to 
        sell, negotiate the sale, or provide services franchises.
            (14) The term ``subfranchisor'' means a person who is 
        granted a subfranchise.
            (15) The term ``trade secret'' means information, including 
        a formula, pattern, compilation, program, device, method, 
        technique, or process, that--
                    (A) derives independent economic value, actual or 
                potential, from not being generally known to, and not 
                being readily ascertainable by proper means by, other 
                persons who can obtain economic value from its 
                disclosure or use, and
                    (B) is the subject of efforts that are reasonable 
                under the circumstances to maintain its secrecy.
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