[Federal Register Volume 62, Number 40 (Friday, February 28, 1997)]
[Proposed Rules]
[Pages 9115-9123]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-4988]



[[Page 9115]]

=======================================================================
-----------------------------------------------------------------------

FEDERAL TRADE COMMISSION

16 CFR Part 436


Trade Regulation Rule on Disclosure Requirements and Prohibitions 
Concerning Franchising and Business Opportunity Ventures

AGENCY: Federal Trade Commission.

ACTION: Advance notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: The Federal Trade Commission (the ``Commission'') proposes to 
commence a rulemaking proceeding to amend its Trade Regulation Rule 
entitled Disclosure Requirements and Prohibitions Concerning 
Franchising and Business Opportunity Ventures (``the Franchise Rule'' 
or ``the Rule'').
    On April 7, 1995, the Commission solicited comment on the Franchise 
Rule, as part of its periodic review of all Commission trade 
regulations and guides. On the basis of the record developed during the 
review of the Franchise Rule, the Commission proposes to commence a 
rulemaking to amend the Franchise Rule. The Commission is soliciting 
written comment, data, and arguments concerning this proposal. In 
addition, the Commission solicits comment on how the Commission can 
ensure the broadest participation by affected interests in the Rule 
amendment process.

DATES: Comments must be submitted on or before April 30, 1997.

ADDRESSES: Written comments should be identified as ``16 CFR Part 436'' 
and sent to Secretary, Federal Trade Commission, Room 159, Sixth Street 
and Pennsylvania Ave., N.W. Washington, DC 20580. To facilitate prompt 
and efficient review and dissemination of the comments to the public, 
all written comments should also be submitted, if possible, in 
electronic form, on either a 5\1/4\ or a 3\1/2\ inch computer disk, 
with a label on the disk stating the name of the commenter and the name 
and version of the word processing program used to create the document. 
Programs based on DOS are preferred. In order for files from other 
operating systems to be accepted, they should be submitted in ASCII 
text format.
    The Commission will also accept comments submitted to the following 
E-Mail address: ``<a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="87c1d5c6c9d7d5c7e1f3e4a9e0e8f1">[email protected]</a>''. In addition, commenters may leave a 
short comment on a telephone hotline number designated for this 
purpose: (202) 326-3573.
    All comments will be placed on the public record and will be 
available for public inspection in accordance with the Freedom of 
Information Act, 5 U.S.C. 552, and the Commission's Rules of Practice, 
16 CFR 4.11, during normal business days from 8:30 a.m. to 5:00 p.m., 
at the Public Reference Room, Room 130, Federal Trade Commission, 6th 
Street and Pennsylvania Avenue, N.W. Washington, DC 20580. In addition, 
comments will be placed on the Internet at the FTC's web site:
http://www.ftc.gov.

FOR FURTHER INFORMATION CONTACT: Steven Toporoff, (202) 326-3135, or 
Myra Howard (202) 326-2047, Division of Marketing Practices, Bureau of 
Consumer Protection, Federal Trade Commission, Washington, DC 20580.

SUPPLEMENTARY INFORMATION:

Part A--General Background Information

    The Commission is publishing this notice pursuant to Section 18 of 
the Federal Trade Commission (``FTC'') Act, 15 U.S.C. 57a et seq., and 
the provisions of Part 1, Subpart B of the Commission's Rules of 
Practice, 16 CFR 1.7, and 5 U.S.C. 551 et seq. This authority permits 
the Commission to promulgate, modify, and repeal trade regulation rules 
that define with specificity acts or practices that are unfair or 
deceptive in or affecting commerce within the meaning of Section 
5(a)(1) of the FTC Act, 15 U.S.C. 45(a)(1).
    The Commission promulgated the Franchise Rule on December 21, 1978, 
43 FR 59614. On April 7, 1995, the Commission published a request for 
comment on the Rule, 60 FR 17656 (``FR Notice''), as part of its 
continuing review of its trade regulation rules (``Rule Review'') to 
determine their current effectiveness and impact. The FR Notice sought 
comment on the standard regulatory review questions, such as what are 
the costs and benefits of the Rule, what changes in the Rule would 
increase the Rule's benefits to consumers and how would those changes 
affect compliance costs, and what changes in the marketplace and new 
technologies may affect the Rule.
    The FR Notice also sought comment on several specific issues: (1) 
Whether the Commission should amend the Rule by replacing the 
disclosures with those set forth in the revised Uniform Franchise 
Offering Circular (``UFOC'') guidelines; (2) Whether the Commission 
should amend the Rule to distinguish between disclosures required for 
business opportunities and those required for franchises; (3) Whether 
the Commission should retain the conditional exemption for trade show 
promoters; (4) Whether the Commission should amend the Rule to require 
franchisors to disclose earnings information; and (5) Whether the 
Commission should amend the Rule to address new marketing practices 
(such as international franchise sales) and new technologies (such as 
the Internet).
    In addition to soliciting written comment on these issues, 
Commission staff held two public workshop conferences on the Rule. 
Staff held the first conference on September 11-13, 1995, in 
Bloomington, Minnesota. The participants discussed whether there is a 
continuing need for the Rule, and, if so, whether the Commission could 
improve the Rule. Staff held the second conference in Washington, D.C., 
on March 11, 1996, and the participants focused on the application of 
the Franchise Rule to international franchise sales.<SUP>1
---------------------------------------------------------------------------

     1 The transcript of the September 1995 Conference is cited as 
``[name of commenter], TR at ____;'' the transcript of the March 
1996 Conference is cited as ``[name of commenter], TR2 at ____.'' 
For a complete list of panelists, and the abbreviations used to 
identify each panelist in this Advance Notice of Proposed Rulemaking 
(``ANPR''), see Attachments 1 and 2. The transcripts are on the 
public record and are available for public inspection.
---------------------------------------------------------------------------

    The Rule Review elicited 75 written comments.<SUP>2 The comments 
generally express continuing support for the Rule, stating that pre-
sale disclosure is a cost-effective way to disseminate material 
information to prospective franchisees that otherwise might be 
unavailable.<SUP>3 Pre-sale disclosure is also necessary to prevent 
fraud <SUP>4 and to reduce the level of post-sale franchise 
relationship disputes.<SUP>5 Most commenters state that the Rule's 
benefits outweigh the costs

[[Page 9116]]

imposed on consumers.<SUP>6 On the basis of the Rule Review record, the 
Commission has decided that the Rule serves a useful purpose. 
Nonetheless, the Commission seeks additional comment on possible 
modifications to the Rule, as discussed below.
---------------------------------------------------------------------------

    \2\ The commenters included franchisors, franchisees, franchisor 
and franchisee trade associations, state franchise and business 
opportunity regulators, Bar Associations, franchise consultants, 
academicians, and a journalist. The comments are cited as ``[name of 
commenter], Comment [designated number], at ____.'' For a complete 
list of the commenters, and the abbreviations used to identify each 
commenter in this ANPR, see Attachment 3. All Rule Review comments 
are on the public record and are available for public inspection.
    \3\ See, e.g., DSA, Comment 21, at 2; Commissioner McDonald, 
Comment 30, at 2; Rabenberg, TR at 103-06. See also IFA, Comment 32, 
at 4; Little Caesars, Comment 31, at 1; Southland Corp., Comment 37, 
at 2. But see Midgol, Comment 3, at 2; AAFD, Comment 39, at 3. 
Several commenters recommended that the Commission replace its Rule 
with the UFOC disclosure format. See, e.g., IFA, Comment 32, at 2-3; 
Simon, Comment 36, at 3-4.
    \4\ See, e.g., General Ryan, Comment 25, at 1; Bortner, Comment 
37, at 1; NASAA, Comment 43, at 1.
    \5\ See, e.g., ABA AT, Comment 22, at 7-8; SBA Advocacy, Comment 
34, at 9; Simon, Comment 36, at 2; Shay, TR at 22-23.
    \6\ See, e.g., Dub, Comment 2, at 2; McBirney, Comment 7, at 2; 
ABA AT, Comment 22, at 8-9.
---------------------------------------------------------------------------

Part B--Objectives the Commission Seeks to Achieve and Possible 
Regulatory Alternatives

1. Modifications to the Franchise Rule Disclosure Requirements

a. Background
    The Commission wants to ensure that the Franchise Rule continues to 
serve a useful purpose and does not impose unnecessary regulatory 
burdens. Accordingly, the Commission seeks comment on whether the Rule 
itself or any specific provisions of the Rule no longer serve a useful 
purpose and should be deleted.
    The Commission also recognizes that many commenters recommend that 
the Commission revise the Rule's disclosure requirements. In 
particular, these commenters suggest that the Commission replace the 
Rule's disclosures with those set forth in the revised UFOC 
guidelines.<SUP>7 They contend that the UFOC's disclosures are superior 
to those of the Rule, and the UFOC's format is more ``user friendly.'' 
<SUP>8 This group of commenters further believes that revising the Rule 
to mirror the UFOC guidelines would promote a more uniform, national 
disclosure standard.<SUP>9 Commenters also believe that, as a practical 
matter, the vast majority of franchisors use the UFOC in order to 
comply with state registration laws. Thus, they conclude that revising 
the Rule would cause few franchisors to incur additional costs.<SUP>10
---------------------------------------------------------------------------

    \7\ See, e.g., D'Imperio, Comment 16, at 1; ABA AT, Comment 22, 
at 5-6; General Ryan, Comment 25, at 1; Snap-On, Comment 27, at 1; 
NASAA, Comment 43, at 2; Forte Hotels, Comment 52, at 1.
    \8\ See, e.g., Wieczorek, Comment 23, at 2; IFA, Comment 32, at 
3-4; AAFD, Comment 39, at 6; CA BLS, Comment 45, at 4; Simon, TR at 
211; Perry, TR at 263.
    \9\ See, e.g., Wieczorek, Comment 23, at 1; Maxey, TR at 36.
    \10\ See, e.g., McBirney, Comment 7, at 2; Wieczorek, Comment 
23, at 1; Lewis, Comment 40, at 1; Hayden, Comment 42, at 1; CA BLS, 
Comment 45, at 1-2.
---------------------------------------------------------------------------

    A few commenters, however, oppose revising the Rule based on the 
UFOC guidelines model. They contend that small or regional franchisors 
who use the FTC format will incur significant expenses if forced to 
convert to a disclosure format akin to the UFOC guidelines.<SUP>11
---------------------------------------------------------------------------

    \11\ See Dub, Comment 2, at 1-2; Nopar, Comment 26, at 1-2. See 
also Century 21, Comment 41, at 1.
---------------------------------------------------------------------------

    Some commenters also recommend that, if the Commission revises the 
Rule based on the UFOC guidelines disclosure requirements, it should 
first modify or fine-tune several of those disclosures. For example, 
several commenters recommend that the Commission revise the disclosure 
of statistics on the franchisees who have left the franchise system 
(Item 20 of the UFOC). They note that Item 20, as currently written, 
may cause franchisors to overcount franchisee closures, leading to 
inflated franchisee failure rates.<SUP>12 Commenters also recommend 
that the Commission continue to permit a three-year phase-in of audited 
financial statements.<SUP>13
---------------------------------------------------------------------------

    \12\ See, e.g., Simon, TR at 224; Perry, TR at 263.
    \13\ See, e.g., Wieczorek, Comment 23, at 2; IFA, Comment 32, at 
4.
---------------------------------------------------------------------------

b. Objectives and Regulatory Alternatives
    On the basis of the Rule Review record, the Commission wishes to 
explore further whether it should revise the Rule's disclosures based 
on the UFOC guidelines.<SUP>14 At the same time, the Commission 
recognizes that franchisors and state regulators have more than two 
years of experience with the revised UFOC disclosure requirements. 
Accordingly, in considering whether to revise the Rule based upon the 
UFOC model, the Commission seeks additional comment on whether any of 
the UFOC's required disclosures should be modified or fine-tuned.
---------------------------------------------------------------------------

    \14\ This proposal does not contemplate preemption of state law. 
If the Commission were to revise its Rule based upon the UFOC 
disclosure requirements, there would be no change in state franchise 
laws. Franchisors would remain free to use either the UFOC format or 
the Commission's format, albeit the two formats would be 
substantially similar. In addition, any state modifications to the 
UFOC guidelines in the future would not alter the Commission's 
disclosure requirements, unless the Commission similarly amended its 
Rule.
---------------------------------------------------------------------------

    In particular, the Commission seeks comment on whether the 
litigation disclosures (Item 3 of the UFOC guidelines) should be 
expanded to include the disclosure of lawsuits filed by franchisors 
against franchisees. This modification would require the broadest 
disclosure of lawsuits involving the franchise relationship.
    Further, the Commission seeks comment on whether the disclosure of 
franchisee statistics (Item 20 of the UFOC guidelines) should be 
modified. In particular, the Commission solicits comment on whether the 
franchisee statistics, as required by Item 20 of the UFOC, accurately 
reflect franchisees' performance history and, if they do not, how could 
the Commission modify those disclosures to reflect such performance 
history more accurately? In connection with the disclosure of 
information concerning former and existing franchisees, the Commission 
also seeks comment on the use of ``gag-order'' provisions by 
franchisors that may effectively bar some franchisees from sharing 
their experiences with prospective franchisees. The Commission is 
concerned that such gag-orders may enable franchisors to circumvent the 
very purpose of a disclosure such as Item 20 of the UFOC--to enable 
prospective franchisees to learn material information about the 
franchise system through discussions with former and existing 
franchisees.
    Finally, the Commission wants to ensure that the Rule does not 
create unreasonable barriers to entry for start-up franchisors. 
Accordingly, the Commission seeks comment on whether it should retain 
its policy of permitting a three-year phase-in of audited financial 
statements for new entrants.

2. Distinguishing Between Disclosure Requirements for Business 
Opportunities and for Franchises

a. Background
    The Franchise Rule covers different types of business arrangements: 
package and product franchises and business opportunities. In package 
and product franchises, the investor sells goods or services that are 
associated with the franchisor's trademark and are subject to 
significant control by, or receive significant assistance from, the 
franchisor.<SUP>15 In contrast, business opportunities often do not 
involve a trademark. Rather, the investor typically distributes goods 
or services supplied by the seller or an affiliate and receives 
accounts or locations in which to conduct the business. Vending machine 
or rack display routes are typical examples of a business opportunity.
---------------------------------------------------------------------------

    \15\ Restaurant outlets are a typical example of a package 
franchise, where the investor typically produces goods or services 
according to the franchisor's specifications. Gasoline stations are 
an example of a product franchise, where the investor typically 
gains the right to distribute the franchisor's trademarked products.
---------------------------------------------------------------------------

    The Franchise Rule imposes identical disclosure requirements for 
business opportunities and franchises. In the FR Notice, the Commission 
sought comment on whether the Commission should distinguish between 
these two business formats. The Commission also asked how the Rule 
should define the

[[Page 9117]]

term ``business opportunity'' and what disclosures are relevant to the 
sale of business opportunities.
    The commenters overwhelmingly recommend that the Commission amend 
the Rule to distinguish between business opportunities and 
franchises.<SUP>16 Commenters note that business opportunities and 
franchises are distinct business formats <SUP>17 and that it is 
confusing to use the term ``franchise'' to describe both 
formats.<SUP>18 There is no consensus, however, on how to define a 
business opportunity or what pre-sale disclosures are appropriate for 
the sale of business opportunities.
---------------------------------------------------------------------------

    \16\ See, e.g., Kestenbaum, Comment 14, at 1-2; D'Imperio, 
Comment 16, at 1-3; Commissioner McDonald, Comment 30, at 3-4; SBA 
Advocacy, Comment 34, at 37-39; NASAA, Comment 43, at 2-3; 
Rabenberg, TR at 129; Shay, TR at 132.
    \17\ See, e.g., DSA, Comment 21, at 2.
    \18\ See, e.g., D'Imperio, Comment 16, at 1; DSA, Comment 21, at 
2.
---------------------------------------------------------------------------

b. Objectives and Regulatory Alternatives
    The Rule Review record supports amending the Rule to distinguish 
between disclosure requirements for business opportunities and for 
franchises. The record also supports amending the Rule to define 
precisely the term ``business opportunity.''
    At this time, however, the Commission is not prepared to make 
specific recommendations on either the appropriate disclosures for 
business opportunities, or a definition of the term ``business 
opportunity.'' During the Rule Review, the Commission received only a 
few comments addressing this issue. Specifically, the Commission 
received comments from one business opportunity purchaser, <SUP>19 one 
association that arguably represents the interests of some business 
opportunity sellers, <SUP>20 and one attorney who has represented 
multilevel distributors. <SUP>21 At this time, the record is 
insufficient on this issue.
---------------------------------------------------------------------------

     <SUP>19 See Rabenberg, Comment 28.
     <SUP>20 See DSA, Comment 21.
     <SUP>21 See Brooks, Comment 29.
---------------------------------------------------------------------------

    In order to develop the record more fully on business 
opportunities, the Commission solicits comment on which types of 
business opportunities are known to engage in deceptive or fraudulent 
conduct and what disclosures are material to business opportunity 
purchasers. In addition, the Commission seeks comment on the 
appropriate definition of the term ``business opportunity.''
    As a starting point in the discussion, the Commission solicits 
comment on the following definition of ``business opportunity'' 
contained in many Federal District Court injunctions <SUP>22 obtained 
by the Commission: ``Business opportunity'' is defined as any written 
or oral business arrangement, however denominated, which consists of 
the payment of any consideration for:
---------------------------------------------------------------------------

     <SUP>22 See, e.g., F.T.C. v. Telecommunications of America, 
Inc., Civ. No. 95-693-CIV-ORL-22 (M.D. Fla. 1995)(Stipulated Final 
Order for Permanent Injunction); F.T.C. v. United States Business 
Bureau, Civ. No. 95-6636-CIV-Ferguson (S.D. Fla. 1995)(Stipulated 
Final Order for Permanent Injunction); F.T.C. v. Car Checkers of 
America, Civ. No. 93-623 (MLP) (D. N.J. 1993)(Stipulated Final Order 
for Permanent Injunction).
---------------------------------------------------------------------------

    A. The right or means to offer, sell, or distribute goods or 
services (whether or not identified by a trademark, service mark, trade 
name, advertising, or other commercial symbol); and
    B. More than nominal assistance to any person or entity in 
connection with or incident to the establishment, maintenance, or 
operation of a new business, or the entry by an existing business into 
a new line or type of business.
    The Commission also solicits suggestions of alternative definitions 
of the term ``business opportunity.'' Finally, the Commission seeks 
comment on how it can ensure greater participation by business 
opportunity interests in the rulemaking process.

3. Conditional Exemption for Trade Show Promoters

a. Background
    Trade show promoters are jointly and severally liable for Rule 
violations as ``franchise brokers.'' However, they are conditionally 
exempt from liability if they provide attendees at their shows with a 
specific consumer education notice. In the FR Notice, the Commission 
solicited comment on whether the Commission should retain this 
conditional exemption.
    Several commenters, including several trade show promoters and 
their representatives, recommend that the Commission no longer hold 
trade show promoters jointly and severally liable as brokers for Rule 
violations. They contend that trade show promoters do not function as 
franchise brokers as contemplated by the Rule.<SUP>23 Further, they 
believe that trade show promoters lack the ability to monitor 
franchisor-exhibitors' sales practices at shows <SUP>24 and do not have 
any incentive to mislead consumers.<SUP>25 In the alternative, 
commenters urge the Commission to retain the conditional exemption for 
trade show promoters. They contend that holding trade show promoters 
liable as ``brokers'' would harm both franchisors and consumers by 
making it impossible for trade shows to continue in business.<SUP>26
---------------------------------------------------------------------------

     23 See, e.g., Brownstein Zeidman, Comment 33, at 3-4; Perry, TR 
at 262.
     <SUP>24 See, e.g., Q.M. Marketing, Comment 17, at 2; Wieczorek, 
Comment 23, at 3; CA BLS, Comment 45, at 10.
     <SUP>25 See Brownstein Zeidman, Comment 33, at 4. See also 
Huke, TR at 235.
     <SUP>26 See Brownstein Zeidman, Comment 33, at 8. See also 
Gaston, Comment 46, at 1.
---------------------------------------------------------------------------

    Other commenters recommend that the Commission revoke the 
conditional exemption on the grounds that trade show promoters should 
be held accountable for questionable advertising and sales practices 
made at shows they sponsor.<SUP>27 They contend that franchise show 
promoters should not be able to turn a ``blind eye'' to violations of 
the Franchise Rule, while indirectly profiting from such 
violations.<SUP>28
---------------------------------------------------------------------------

     27 See, e.g., General Ryan, Comment 25, at 2; Commissioner 
McDonald, Comment 30, at 6; Bortner, Comment 37, at 3; NASAA, 
Comment 43, at 2.
     <SUP>28 See Hayden, Comment 42, at 2.
---------------------------------------------------------------------------

b. Objectives and Regulatory Alternatives
    The Commission wishes to explore further whether trade show 
promoters should no longer be held liable as ``franchise brokers.'' The 
Rule Review record supports the view that trade show promoters do not 
act as brokers: they do not participate in the offer and sale of 
franchises, do not make sales recommendations, and do not create 
materials used by franchisor-exhibitors to sell franchises (such as 
brochures, product displays, agreements, or disclosure documents). 
Further, trade show promoters, as a practical matter, lack the ability 
to monitor franchisor-exhibitors' sales practices at their shows. 
Accordingly, the Commission seeks comment on whether the Commission 
should amend the Rule's definition of the term ``franchise broker'' to 
specifically exempt trade show promoters.
    At the same time, the Commission seeks comment on whether 
prospective franchisees attending trade shows should readily be able to 
verify claims made by franchisor-exhibitors and their sales agents. Our 
law enforcement experience indicates that franchisors and business 
opportunity sellers at trade shows may make various oral or written 
misrepresentations or unsubstantiated earnings claims. Accordingly, the 
Commission solicits comment on whether a trade show sales section 
should be added to the Rule that would require franchisors and their 
sales agents to have readily available for public inspection at each 
trade show they attend either a specimen copy of their disclosure 
document or a letter

[[Page 9118]]

from an attorney stating that, although they are covered by the Rule's 
definition of a franchise, they fall within one of the Rule's 
exclusions or exemptions. In the alternative, the Commission solicits 
comment on whether the Rule's definition of ``personal meeting'' should 
be modified to require all franchisors and their sales agents to have 
readily available for public inspection at each trade show they attend 
either a specimen copy of their disclosure document or a letter from an 
attorney stating that, although they are covered by the Rule's 
definition of a franchise, they fall within one of the Rule's 
exclusions or exemptions.

4. Earnings Disclosures

a. Background
    In the FR Notice, the Commission solicited comment on whether it 
should modify the Rule to require franchisors to disclose earnings 
information. The Commission also solicited comment on the extent to 
which franchisors disclose financial data to prospective franchisees; 
the types of financial data currently available to franchisors; the 
costs and benefits of possible required earnings disclosures; and 
possible earnings disclosure formats and exemptions.
    State franchise regulators, franchisees, and franchisee 
representatives recommend that the Commission mandate earnings 
disclosures. They believe that earnings information is the most 
material information prospective franchisees need to make an informed 
investment decision.<SUP>29 They also believe that franchisors already 
have such information and that it is deceptive for such franchisors to 
fail to disclose this information to prospective franchisees.<SUP>30 
They also contend that disclosure of earnings information will reduce 
the level of false and unsubstantiated oral and written earnings 
claims.<SUP>31 Several commenters also contend that the franchise 
marketplace and competition would benefit from the free flow of 
earnings information.<SUP>32 Finally, commenters note that a mandatory 
earnings disclosure would correct the misrepresentation made by some 
franchisors that the Franchise Rule or the FTC prohibits the making of 
earnings disclosures.<SUP>33
---------------------------------------------------------------------------

     29 See, e.g., Lagarias, Comment 13, at 1-2; SBA Advocacy, 
Comment 34, at 55; AFA, Comment 38, at 1; AAFD, Comment 39, at 6.
     <SUP>30 See, e.g., Pennell, Comment 5, at 1; Brown, Comment 9, 
at 3-129; Lagarias, Comment 13, at 3; AFA, Comment 38, at 1.
     <SUP>31 See, e.g., Lagarias, Comment 13, at 2; AAFD, Comment 
39, at 7; Selden, Comment 49, at 4.
     <SUP>32 See, e.g., ABA AT, Comment 22, at 5-6.
     <SUP>33 See, e.g., Lagarias, Comment 13, at 2; AFA, Comment 38, 
at 9; Perry, Comment 44, at 5.
---------------------------------------------------------------------------

    Franchisors generally oppose mandatory disclosure of earnings 
information.<SUP>34 They contend that it is impossible for the 
Commission to create one earnings disclosure format for all franchised 
businesses that will not be misleading, noting that information 
collected from franchisees is not uniform <SUP>35 and may be 
inaccurate.<SUP>36 In addition, they contend that not all franchisors 
have the contractual ability to gather earnings data from their 
franchisees.<SUP>37 These commenters are also concerned that earnings 
information collected from franchisees may have little predictive value 
to a prospective franchisee <SUP>38 and that such information may be 
misinterpreted as a guarantee of future performance.<SUP>39 They also 
believe that mandating an earnings disclosure would increase the 
burdens and costs on existing franchisees: franchisors may require them 
to submit earnings information and may subject them to increased 
liability for reporting inaccurate earnings information.<SUP>40 For 
these reasons, many commenters believe that mandating earnings 
disclosures would have a negative impact upon the franchisor-franchisee 
relationship.<SUP>41
---------------------------------------------------------------------------

     34 See, e.g., Dub, Comment 2, at 4; RENN, Comment 24, at 2; 
Snap-On, Comment 27, at 2; IFA, Comment 32, at 14; Gaston, Comment 
46, at 1.
     <SUP>35 See U-Save Auto Rental, Comment 19, at 2; IFA, Comment 
32, at 12-13; Simon, Comment 36, at 6.
     <SUP>36 See, e.g., Glenn, Comment 6, at 2; SRA International, 
Comment 8, at 3; CA BLS, Comment 45, at 13; Forseth, TR at 298; 
Tifford, TR at 303-04; Gaston, TR at 533.
     <SUP>37 See, e.g., Glenn, Comment 6, at 2; U-Save Auto Rental, 
Comment 19, at 3; Nopar, Comment 26, at 2; Simon, Comment 36, at 7.
     <SUP>38 See, e.g., Dub, Comment 2, at 4; SRA International, 
Comment 8, at 2; RENN, Comment 24, at 2; Nopar, Comment 26, at 4.
     <SUP>39 See, e.g., D'Imperio, Comment 16, at 11; Simon, Comment 
36, at 5.
     <SUP>40 See, e.g., RENN, Comment 24, at 2; Little Caesars, 
Comment 31, at 2; Simon, Comment 36, at 4-5; Century 21, Comment 41, 
at 2; Medicap, Comment 48, at 2.
     <SUP>41 See, e.g., Glenn, Comment 6, at 2; SRA International, 
Comment 8, at 3; Simon, Comment 36, at 7; Gaston, TR at 531-32. See 
also ABA AT, Comment 22, at 11.
---------------------------------------------------------------------------

b. Objectives and Regulatory Alternatives
    The Commission believes that consumers should have access to 
material information before investing in a franchise or business 
opportunity. The Rule Review record, however, does not support the view 
that a franchisor's failure to provide earnings information is 
necessarily deceptive or unfair. Approximately 20 percent of 
franchisors currently choose to make earnings disclosures.<SUP>42 Thus, 
in theory, prospective franchisees can find franchise systems that 
voluntarily disclose earnings information.<SUP>43 If prospective 
franchisees were to seek out such franchise systems, or demand the 
disclosure of such information from franchisors, ordinary market forces 
may compel an increasing number of franchisors to disclose earnings 
information voluntarily, without federal government intervention.
---------------------------------------------------------------------------

     <SUP>42 See, e.g., Bortner, Comment 37, at 3; NASAA, Comment 
43, at 3.
     <SUP>43 See Lewis, Comment 40, at Exhibit G (compilation of 
sales, cost, and profit information on 145 franchise systems in 70 
business categories).
---------------------------------------------------------------------------

    In addition, the Rule Review record indicates that prospective 
franchisees can obtain earnings information from other sources. For 
example, typical expenses, such as labor and rent, may be available 
from industry trade associations and industry trade press.<SUP>44 In 
addition, prospective franchisees are free to discuss earnings and 
other performance issues with former and existing franchisees.
---------------------------------------------------------------------------

     <SUP>44 See, e.g., U-Save Auto Rental, Comment 19, at 2; RENN, 
Comment 24, at 1.
---------------------------------------------------------------------------

    Moreover, the Rule Review record does not provide a sufficient 
basis for the Commission to formulate an earnings disclosure that would 
be both useful and not misleading to prospective franchisees. Finally, 
mandating earnings might impose additional burdens and costs on 
existing franchisees. Yet, the Rule Review record is insufficient to 
establish that these increased burdens and costs are outweighed by 
benefits to prospective franchisees.
    Nonetheless, the Commission believes that it is important to 
correct the misrepresentation made by some franchisors that the 
Commission or the Franchise Rule actually prohibits the disclosure of 
earnings information. At the same time, the Commission wants to caution 
prospective franchisees not to rely on unsubstantiated earnings 
representations. Accordingly, the Commission solicits comment on 
whether the Rule should be modified to require all franchisors to make 
the following prescribed statement in their disclosure document:

    The FTC's Franchise Rule permits a franchisor to provide you 
with information about the actual or potential sales, income, or 
profits of its outlets, provided that there is a reasonable basis 
for such information and the franchisor offers to provide you with 
written substantiation. You should not rely on any information on 
sales, income, or profits provided by a franchisor or its 
salesperson if written substantiation is not offered.


[[Page 9119]]


    In addition, the Commission solicits comment on whether 
franchisors who do not disclose earnings information should include 
the following additional prescribed statement:

    This franchisor does not make any representations about sales, 
income, or profits. We also do not authorize our salespersons to 
make any such representations either orally or in writing.

5. New Marketing Practices and Technological Developments

a. Background
    In the FR Notice, the Commission sought information on new 
marketing practices and technological developments that might have an 
impact on the Rule. In response, several commenters note the increase 
in international franchise sales by American franchisors.<SUP>45 These 
commenters request that the Commission clarify its position on whether 
the Franchise Rule applies in such circumstances. In order to develop 
the record on this issue, Commission staff held a one-day public 
workshop conference in March 1996.
---------------------------------------------------------------------------

     <SUP>45 See, e.g., IFA, Comment 32, at 15-16; Zwisler, Comment 
59, at 6; Tifford, TR at 199. See generally Mazero, Comment 50.
---------------------------------------------------------------------------

    The Rule Review record strongly supports modification of the Rule 
to clarify that international franchise sales are not within its 
purview. Among other factors, commenters note that: (1) the Commission 
did not contemplate international franchising when it promulgated the 
Rule;<SUP>46 (2) the disclosures required by the Franchise Rule are 
aimed at the domestic market;<SUP>47 (3) foreign franchise purchasers 
are sophisticated and do not need the Rule's protections;<SUP>48 (4) 
attempting to comply with the Franchise Rule in foreign sales might 
result in the dissemination of inaccurate or misleading 
information;<SUP>49 and (5) application of the Franchise Rule to 
international sales would unnecessarily impede competition.<SUP>50
---------------------------------------------------------------------------

     46 See, e.g., Clanton, TR2 at 169; Baer, TR2 at 160-61; Wulff, 
TR2 at 154.
     <SUP>47 See, e.g., Wieczorek, Comment 60, at 3-5; Pepsico, 
Comment 62, at 2-3; IFA, Comment 63, at 4; Clanton, TR2 at 169.
     <SUP>48 See, e.g., IFA, Comment 64, at 3; Loewinger, TR2 at 85; 
Swartz, TR2 at 113. See also Mazero, Comment 50, at 33; Zwisler, 
Comment 59, at 3.
     <SUP>49 See, e.g., Friday's, Comment 58, at 1; Mazero, TR at 
188. See also Wieczorek, Comment 60, at 3-5; Miolla, TR2 at 74-75; 
Ainsley, TR2 at 116.
     <SUP>50 See, e.g., Zeidman, TR2 at 109; Brennan, TR2 at 165; 
Mills, TR2 at 203.
---------------------------------------------------------------------------

    In addition to the international sales issue, the Commission 
explored whether the Rule should be modified in light of increased 
sales of franchises and business opportunities through the telephone 
and the Internet. For example, one commenter observes that the day may 
come when franchise sales are conducted solely via computer without any 
``personal meeting.'' <SUP>51
---------------------------------------------------------------------------

     51 See Pineles, TR at 180-81.
---------------------------------------------------------------------------

    The Commission also believes that two additional marketing 
developments warrant further comment. First, the Commission notes the 
increased sale of ``stream of revenue'' package franchises. Most often 
used in commercial janitorial services franchises, stream of revenue 
franchises involve a promise by the franchisor to provide the 
franchisee with accounts that will generate a certain level of income. 
The franchisee then selects the level of accounts desired and pays a 
franchise fee that varies in some proportion to the value of those 
accounts. The Commission believes that the offer of accounts worth a 
certain value suggests to the prospective franchisee a particular level 
of potential income, which constitutes the making of an earnings 
representation under the Rule.
    Second, the Commission notes the increasing sale of ``co-branded'' 
franchises, in which two or more franchisors combine forces to offer a 
franchisee the opportunity to operate two or more trademarked 
franchises in one outlet. For example, an ice cream franchisor and a 
donuts franchisor might offer one joint franchise system. In such 
circumstances, the Commission is uncertain whether the franchisee is 
purchasing two individually trademarked franchises (and thus should 
receive separate disclosures from each franchisor) or is purchasing a 
hybrid franchise arrangement that has its own risks (and thus should 
receive a single unified disclosure document).<SUP>52
---------------------------------------------------------------------------

     52 Co-branding raises a number of disclosure issues. For 
example, should the purchaser of a co-branded franchise receive 
disclosures of franchisee statistics from each individual franchisor 
participating in the co-branded arrangement, or should the purchaser 
also receive statistics on previous purchasers of the co-branded 
franchise. Similarly, must termination and renewal rights be 
consistent for each participating franchisor, or may each 
participating franchisor impose their own termination and renewal 
rights?
---------------------------------------------------------------------------

b. Objectives and Regulatory Alternatives
    The Commission wants to ensure that the Rule does not impose 
unnecessary costs and burdens without corresponding benefits to 
consumers. Accordingly, the Commission seeks comment on whether it 
should modify the Rule to clarify that the Rule does not reach the sale 
of franchises to be located or operated outside the United States, its 
territories, and possessions. The Commission also seeks comment on the 
appropriate language for such a modification.
    The Commission also wants to ensure that consumers receive pre-sale 
disclosures early in the sales process. The Rule requires franchisors 
to provide prospective franchisees with a disclosure document at the 
earlier of the ``time for making of disclosures'' <SUP>53 or the first 
``personal meeting.'' <SUP>54 The Commission believes that the term 
``personal meeting,'' which triggers the franchisor's obligation to 
provide a disclosure document, may be obsolete in light of the 
increasing use of the telephone and the Internet to market franchises 
and business opportunities. The term ``personal meeting'' contained in 
the Rule was designed to reach that point in the sales process when the 
franchise seller engages a prospective franchisee in substantive 
discussion about the venture being offered. Accordingly, the Commission 
seeks comment on whether the Rule should be modified to replace the 
term ``personal meeting'' with a term such as ``first substantive 
discussion.'' The Commission seeks comment on alternatives, as well as 
any costs or benefits associated with each such alternative. At the 
same time, the Commission seeks comment on how franchisors might be 
able to comply with the Rule's disclosure requirements through the 
Internet.
---------------------------------------------------------------------------

     <SUP>53 The term ``time for making of disclosures'' means ten 
business days prior to the earlier of: (1) the execution of a 
franchise agreement or other agreement imposing a binding legal 
obligation; or (2) the payment of a fee in connection with the sale 
of the proposed franchise. See 15 CFR Sec. 436.2(g).
     <SUP>54 The term ``personal meeting'' means a face-to-face 
meeting held for the purpose of discussing the sale or possible sale 
of a franchise. See 16 CFR Sec. 426.2(o).
---------------------------------------------------------------------------

    In addition, the Commission wants to ensure that franchisors and 
franchisees are clear about what constitutes an earnings representation 
that would trigger the Rule's substantiation requirements. Accordingly, 
the Commission seeks comment on whether it should amend the Rule's 
treatment of earnings representations to make explicit that the offer 
of a stream of revenue franchise is the making of an earnings 
representation that would trigger the Rule's earnings substantiation 
requirements.
    Finally, the Commission wants to ensure that prospective 
franchisees receive complete and relevant disclosures. Accordingly, the 
Commission seeks comment on the sale of co-branded franchises. In 
particular, the Commission seeks information on the extent to which 
franchise sales involve more than one trademark. It also

[[Page 9120]]

solicits comment on whether there is any confusion among franchisors 
with respect to their disclosure obligation when joining forces to sell 
a co-branded franchise. The Commission also seeks comment on whether 
any need exists to clarify the Rule to address disclosure obligations 
with respect to the sale of a co-branded franchise system.

6. Alternatives to Burdensome Regulations and Enforcement

a. Background
    On March 4, 1995, the White House issued a Memorandum directed at 
all heads of federal departments and agencies on the Regulatory 
Reinvention Initiative. This memorandum makes regulatory reform a top 
priority. Among other things, the memorandum asks agencies to learn 
from those affected by regulation, as well as to consider ways to 
promote better communication, consensus building, and a less 
adversarial environment between regulators and the regulated. 
Specifically, the memorandum asks agencies to consider if the intended 
goals of regulation can be achieved in a more efficient, less intrusive 
way, and whether private sector alternatives can better achieve the 
public good envisioned by the regulation.
    In response to the March 4, 1995, memorandum on the Regulatory 
Reinvention Initiative, the Commission intends to reduce regulatory 
burdens, where appropriate. The Commission also intends to use the 
private sector as a partner in a cooperative effort to tackle deceptive 
and unfair trade practices where they exist. Indeed, developing 
partnership with industry has become vital in an age of reduced law 
enforcement resources. Thus, in addition to its role as a vigilant law 
enforcement agent, the Commission will encourage self-regulation by the 
private sector, where appropriate.
b. Objectives and Regulatory Alternatives
    In keeping with the goals of the Regulatory Reinvention Initiative, 
the Commission seeks comment on whether it should develop a program to 
reduce or waive civil penalties for violations of the Franchise Rule 
under limited circumstances. In an age of decreasing resources, the 
Commission questions whether it should continue to use its limited 
resources to pursue technical or minor violations of the Franchise 
Rule, instead of focusing its attention on more serious violations that 
have caused significant consumer injury.
    Accordingly, the Commission solicits comment on: (1) whether it 
should develop a program to reduce or waive civil penalties for 
technical or minor violations of the Franchise Rule; (2) under what 
circumstances should the Commission consider reducing or waiving civil 
penalties?; (3) under what circumstances would it be inappropriate for 
the Commission to reduce or waive a civil penalty?; and (4) what terms 
and conditions should accompany the waiver or reduction of a civil 
penalty? The Commission also seeks comments on the costs and benefits 
of any such program to reduce civil penalties on both franchisors and 
franchisees?

7. The Rulemaking Process

    The Commission seeks the broadest participation by the affected 
interests in the rulemaking. To that end, the Commission will revise 
the Franchise Rule through an ``open rulemaking,'' which will provide 
all affected interests numerous opportunities to submit comments and to 
participate in the rule amendment process.
    The Commission encourages all interested parties to submit written 
comments. The Commission, however, recognizes that some interested 
parties may find it easier to submit comments through the Internet or 
by telephone. Accordingly, the Commission will permit comments to be 
filed via an E-Mail address on the Internet and through a telephone 
hotline number designated for this purpose.
    The Commission also expects the affected interests to assist the 
Commission in analyzing various options and in drafting a proposed 
amended rule. The Commission believes that public workshop conferences 
to discuss the various issues involving the Rule are a productive and 
efficient means to develop the record and explore various alternatives. 
The Commission will also use public workshop conferences to assist the 
Commission in drafting a proposed amended rule.
a. Internet Comments
    Staff will place a copy of this ANPR on the Internet at the FTC's 
web site: http://www.ftc.gov. In addition, the Commission will accept 
comments through the Internet. Accordingly, all interested parties may 
submit a comment through an E-Mail address designated for this purpose: 
``<a href="/cdn-cgi/l/email-protection" class="__cf_email__" data-cfemail="d99f8b9897898b99bfadbaf7beb6aff7">[email protected]</a>'' Each comment should contain the name and address of 
the commenter. The Commission will place all comments on the public 
record and on the Internet at its web site.
b. Telephone Hotline
    Parties interested in submitting a comment via telephone may do so 
by calling the Commission's telephone hotline number designated for 
this purpose: (202) 326-3573. This hotline number is intended to 
facilitate public comment on the rulemaking; it is not intended as a 
hotline number for disseminating franchise information or for receiving 
complaint information. The Commission requests all callers to identify 
themselves clearly, including their name, address, and telephone 
number. Staff will transcribe all messages verbatim and place them on 
the public record and on the Internet at the FTC's web site.
c. Public Workshop Conferences
    In order to facilitate the greatest participation by the public in 
the rule amendment process, Commission staff will hold several public 
workshop conferences to discuss the issues noted above. Staff will 
announce a schedule of these conferences after the close of the comment 
period.

Part C--Request for Comments

    Members of the public are invited to comment on any issues or 
concerns they believe are relevant or appropriate to the Commission's 
consideration of the proposed amendments to the Franchise Rule. The 
Commission requests that factual data upon which the comments are based 
be submitted with the comments. In addition to the issues raised above, 
the Commission solicits public comment on the specific questions 
identified below. These questions are designed to assist the public and 
should not be construed as a limitation on the issues on which public 
comment may be submitted.

Questions

A. The Franchise Rule
    1. Is there a continuing need for the Commission's Franchise Rule? 
Are there any specific Rule disclosure requirements that no longer 
serve a useful purpose? Should the Commission modify the Rule to delete 
those requirements? What would be the costs and benefits to franchisors 
and to prospective franchisees?
B. The UFOC Guidelines
    2. Should the Commission revise the Rule based on the UFOC 
guidelines disclosure requirements? What would be the costs and 
benefits to franchisors and to prospective franchisees?
    3. If the Commission revises the Rule based on the UFOC guidelines 
disclosure requirements, should the

[[Page 9121]]

Commission modify the litigation disclosures (Item 3 of the UFOC) to 
require franchisors to disclose law suits filed by franchisors against 
franchisees, in addition to suits by franchisees against franchisors? 
What would be the costs and benefits to franchisors and to prospective 
franchisees?
    4. If the Commission revises the Rule based on the UFOC guidelines 
disclosure requirements, should the Commission modify the franchisee 
statistics disclosures (Item 20 of the UFOC guidelines), and if so, 
how? What would be the costs and benefits to franchisors and to 
prospective franchisees?
    5. To what extent do franchisors use ``gag orders'' to inhibit 
former or existing franchisees from speaking with prospective 
franchisees or other parties? Should the Commission modify the Rule to 
prohibit franchisors from using such gag order provisions and, if so, 
how? What alternatives would ensure that prospective franchisees can 
freely obtain information from former and existing franchisees about 
their experiences with the franchise system? What would be the costs 
and benefits of such alternatives?
    6. Should the Commission retain the three-year phase-in of 
financial statements for new entrants? What alternative phase-in 
provisions would be appropriate? What are the costs and benefits of 
each alternative?
    7. If the Commission uses the UFOC guidelines as a model for 
revising the Franchise Rule, should the Commission consider modifying 
or fine-tuning any of the UFOC disclosure requirements? Which ones 
should be modified and, if so, how? What would be the costs and 
benefits to franchisors and to prospective franchisees?
C. Business Opportunities
    8. What types of business opportunities are common in the United 
States? What trade associations or other organizations represent the 
interests of business opportunities?
    9. Are there certain types of business opportunities where 
purchasers are more likely to lose money than others? What are the 
characteristics of these loss-prone business opportunities? How can the 
Commission distinguish between the loss-prone business opportunities 
and those that are more likely to prove profitable?
    10. What types of business opportunities are known to engage in 
fraud? How can the Commission distinguish between fraudulent business 
opportunities and legitimate business opportunities?
    11. Should the minimum investment of $500 that triggers Franchise 
Rule coverage be lowered for business opportunities? If so, what should 
be the minimum threshold? What would be the costs and benefits of such 
a minimum? What would be the costs and benefits of requiring 
disclosures for sales that involve investments smaller than $500.
    12. How should the Commission define the term ``business 
opportunity'' for Rule purposes? What characteristics distinguish 
selling a business opportunity from just selling goods or services? How 
can these characteristics be used to limit the scope of any business 
opportunity rule? What would be the costs and benefits of any 
definition offered?
    13. What types of offers of assistance are crucial to a business 
opportunity? In seeking to define the term ``business opportunity,'' 
what types of assistance should the Commission focus on? What would be 
the costs and benefits of such proposals?
    14. Should the Commission define the term ``business opportunity'' 
as:
    Any written or oral business arrangement, however denominated, 
which consists of the payment of any consideration for:
    A. The right or means to offer, sell, or distribute goods or 
services (whether or not identified by a trademark, service mark, trade 
name, advertising, or other commercial symbol); and
    B. More than nominal assistance to any person or entity in 
connection with or incident to the establishment, maintenance, or 
operation of a new business, or the entry by an existing business into 
a new line or type of business.
    What alternative definitions of the term ``business opportunity'' 
would be appropriate? What would be the costs and benefits of each 
alternative?
    15. What pre-sale disclosures are necessary to ensure that business 
opportunity purchasers receive material information necessary to make 
an informed investment decision? What would be the costs and benefits 
of each such disclosure?
    16. What pre-sale disclosures are necessary to prevent fraud in the 
sale of business opportunities? What would be the costs and benefits of 
each such disclosure?
D. Trade Shows
    17. Should the Commission modify the Rule to exempt trade show 
promoters from Rule coverage as brokers? What would be the costs and 
benefits of such an exemption?
    18. Should the Commission modify the Rule to contain a separate 
trade show sales provision that would require franchisor-exhibitors, 
brokers, and their agents to have readily available at trade shows for 
public inspection either a specimen copy of their disclosure document 
or a letter explaining why they fall within one of the Rule's 
exclusions or exemptions? If so, how should the Commission define the 
term ``available for public inspection?'' What would be the costs and 
benefits of this proposal?
    19. In the alternative, should the Commission modify the Rule's 
definition of ``personal meeting'' to require franchisor-exhibitors, 
brokers, and their agents to have readily available at trade shows for 
public inspection either a specimen copy of their disclosure document 
or a letter explaining why they fall within one of the Rule's 
exclusions or exemptions? If so, how should the Commission define the 
term ``available for public inspection?'' What other alternatives 
should the Commission consider to reduce the instances of deceptive 
sales representations at trade shows? What would be the costs and 
benefits of each proposal?
E. Earnings Disclosures
    20. To what extent do franchisors represent that either the Rule or 
the Commission prohibits them from making earnings representations? Is 
there a need to clarify the Rule to make clear that neither the 
Commission nor the Rule prohibits franchisors from making earnings 
representations?
    21. Should the Commission modify the Rule to require all 
franchisors to make the following prescribed statement:
    The FTC's Franchise Rule permits a franchisor to provide you with 
information about the actual or potential sales, income, or profits of 
its outlets, provided that there is a reasonable basis for such 
information and the franchisor offers to provide you with written 
substantiation. You should not rely on any information on sales, 
income, or profits provided by a franchisor or its salespersons if 
written substantiation is not offered.
    What alternative language would be appropriate? What would be the 
costs and benefits of such a disclosure?
    22. Should the Commission modify the Rule to require all 
franchisors who do not make earnings disclosures to make the following 
additional prescribed disclosure:
    This franchisor does not make any representations about sales, 
income, or profits. We also do not authorize our salespersons to make 
any such

[[Page 9122]]

representations either orally or in writing.
    Would such a disclosure be interpreted to hold harmless a 
franchisor whose sales people routinely make unauthorized earnings 
representations? What alternative language would be appropriate? What 
would be the costs and benefits of such a disclosure?
    23. Should the Commission modify the Rule's treatment of earnings 
representations to make explicit that the sale of ``stream of revenue 
contracts'' is the making of an earnings claim? What would be the costs 
and benefits of such a modification?
    24. Should the Commission modify the Rule's disclosures for 
earnings claims in advertising? What are the costs and benefits 
associated with each of the disclosures for earnings claims in 
advertising? Does the ``caution'' disclosure provide any information 
that is not already conveyed by the other required disclosure 
concerning the percentage of outlets that have achieved the earnings 
claimed?
    25. Should the Commission modify the Rule to require a disclosure 
for earnings claims only if a significant percentage of outlets do not 
achieve the earnings claimed? If so, what percentage should trigger the 
disclosure requirement? What would be the costs and benefits of 
adopting such an approach?
F. New Marketing Approaches and New Technologies
    26. Should the Commission modify the Rule to clarify that the Rule 
does not reach the sale of franchises to be located or operated outside 
the United States, its territories, and possessions? If so, please 
provide recommended language for such a modification. What would be the 
costs and benefits of such a modification?
    27. Should the Commission continue to use the term ``personal 
meeting'' for making disclosures in light of the use of the telephone, 
the Internet, and other technologies to sell franchises? Should the 
Commission replace the term ``personal meeting'' with the term ``first 
substantive discussion?'' If so, how should the term ``first 
substantive discussion'' be defined? What other term would be 
appropriate? What would be the costs and benefits of such a 
modification?
    28. Should the Commission permit franchisors to comply with the 
Franchise Rule's disclosure obligations by posting disclosure documents 
on the Internet? What would be the costs and benefits to both 
franchisors and prospective franchisees? What aspects of the Rule (or 
UFOC requirements) might hinder compliance via the Internet? How might 
the Commission modify the Rule to protect consumers from any 
potentially deceptive or unfair practices that might arise from firms' 
efforts to comply with the Rule's disclosure provisions via the 
Internet?
    29. To what extent do franchisors offer for sale multi-trademark 
franchises (``co-branded'' franchises) in the United States? Do 
franchisors have sufficient guidance under the Rule to determine their 
disclosure obligations with respect to the sale of co-branded 
franchises? Do franchisees purchasing a co-branded franchise need 
additional or different disclosures than those who purchase a single-
trademark franchise? Should the Commission modify the Rule to address 
these concerns and, if so, how? What would be the costs and benefits of 
any such modification?
G. Self Regulation and Alternatives to Law Enforcement
    30. Should the Commission develop a program to reduce or waive 
civil penalties for certain violations of the Franchise Rule? Under 
what circumstances would it be appropriate for the Commission to waive 
or reduce civil penalties involving Franchise Rule violations? What 
terms or conditions should accompany such a waiver or reduction of 
civil penalties? Under what circumstances would it be inappropriate to 
reduce or waive civil penalties? What would be the costs and benefits 
of such a program on franchisors and franchisees?
H. Additional Issues
    31. How can the Commission ensure the broadest participation in the 
rulemaking process by affected interests? How can the Commission 
identify affected interests, facilitate the submission of comments, and 
increase participation by affected interests at future public workshop 
conferences?

List of Subjects in 16 CFR Part 436

    Advertising, Business and industry, Franchising, Trade practices.

    Authority: 15 U.S.C. 41-58.

    By direction of the Commission.
Donald S. Clark,
Secretary.

Attachment 1--September 1995 Public Workshop Conference

Panelists

1. Harold Brown (``Brown''), Brown & Stadfeld
2. Sam Damico (``Damico''), Q.M. Marketing, Inc.
3. Connie B. D'Imperio (``D'Imperio''), Color Your Carpet, Inc.
4. Eric Ellman (``Ellman''), Direct Selling Association (``DSA'')
5. Mark B. Forseth (``Forseth''), Locke Purnell Rain Harrell
6. Mike Gaston (``Gaston''), Barkley & Evergreen
7. Susan Kezios (``Kezios''), American Franchisee Association 
(``AFA'')
8. William Kimball (``Kimball''), Iowa Coalition for Responsible 
Franchising
9. Warren Lewis (``Lewis''), Lewis & Trattner
10. Steven Maxey (``Maxey''), North American Securities 
Administrators Association, Inc. (``NASAA'')
11. Joyce G. Mazero (``Mazero''), Locke Purnell Rain Harrell
12. Barry Pineles (``Pineles''), U.S. Small Business Administration 
(``SBA Advocacy'')
13. Robert Purvin (``Purvin''), American Association of Franchisees 
& Dealers (``AAFD'')
14. Steven Rabenberg (``Rabenberg''), Explore St. Louis
15. Matthew R. Shay (``Shay''), International Franchise Association 
(``IFA'')
16. Neil A. Simon (``Simon''), Hogan & Hartson
17. Robin Spencer (``Spencer''), representing American Franchisee 
Association
18. Leonard Swartz (``Swartz''), Arthur Andersen & Co.
19. John Tifford (``Tifford''), Brownstein Zeidman & Lore
20. Ronnie Volkening (``Volkening''), The Southland Corporation
21. Dennis E. Wieczorek (``Wieczorek''), Rudnick & Wolfe
22. William J. Wimmer (``Wimmer''), Iowa Coalition for Responsible 
Franchising

Public Participants

1. Peter Denzen (``Denzen'')
2. Bob Hessler (``Hessler''), Wendy's
3. Chris Huke, (``Huke''), SC Promotions
4. Michael Jorgensen (``Jorgensen'')
5. Robert L. Perry (``Perry'')
6. Brian Schnell (``Schnell''), Gray, Plant, Mooty

Attachment 2--March 1996 Public Workshop Conference

Panelists

1. Kay M. Ainsley (``Ainsley''), Ziebart International Corp.
2. John R.F. Baer (``Baer''), Keck, Mahin & Cate
3. Michael Brennan (``Brennan''), Rudnick & Wolfe
4. Joel R. Bucksberg (``Bucksberg''), HFA Inc.
5. David A. Clanton (``Clanton''), Baker & McKenzie
6. Kenneth R. Costello (``Costello''), Loeb & Loeb
7. Edward J. Fay (``Fay''), Kwik Kopy Corp.
8. Mark B. Forseth (``Forseth''), Locke Purnell Rain Harrell
9. Byron E. Fox (``Fox''), Hunton & Williams
10. Bruce Harsh (``Harsh''), International Trade Specialist, U.S. 
Department of Commerce
11. Arnold Janofsky (``Janofsky''), Precision Tune
12. Susan P. Kezios (``Kezios''), American Franchisee Association 
(``AFA'')

[[Page 9123]]

13. Alex S. Konigsberg, QC (``Konigsberg''), Lapoint Rosenstein
14. Andrew P. Loewinger (``Loewinger''), Abraham Pressman & Bauer
15. H. Bret Lowell (``Lowell''), Brownstein Zeidman & Lore
16. John Melle (``Melle''), Office of U.S. Trade Representative
17. Raymond L. Miolla (``Miolla''), Burger King Corp.
18. Alec Papadakis (``Papadakis''), Hurt Sinisi Papadakis
19. Matthew R. Shay (``Shay''), International Franchise Association 
(``IFA'')
20. Neil A. Simon (``Simon''), Hogan & Hartson
21. Leonard Swartz (``Swartz''), Arthur Andersen & Co.
22. Greg L. Walther (``Walther''), Outback Steakhouse International
23. Dennis E. Wieczorek (``Wieczorek''), Rudnick & Wolfe
24. Erik B. Wulff (``Wulff''), Hogan & Hartson
25. Philip F. Zeidman (``Zeidman''), Brownstein Zeidman & Lore
26. Carl Zwisler (``Zwisler''), Keck, Mahin & Cate

Public Participants

1. Jeff Brams (``Brams''), Sign-A-Rama and Shipping Connection
2. Pamella Mills (``Mills''), Baker & McKenzie

Attachment 3--Table of Commenters

Comment 1. Robert E. Mulloy, Jr. (``Mulloy'')
Comment 2. Stanley M. Dub (``Dub''), Dworken & Bernstein
Comment 3. Marvin J. Migdol (``Migdol''), Nationwide Franchise 
Marketing Services
Comment 4. SCPromotions, Inc. (``SCPromotions'')
Comment 5. R. Dana Pennell (``Pennell'')
Comment 6. Robin Day Glenn (``Glenn'')
Comment 7. Jack McBirney (``McBirney''), McGrow Consulting
Comment 8. SRA International (``SRA International'')
Comment 9. Harold Brown (``Brown''), Brown & Stadfeld
Comment 10. Ronald N. Rosenwasser (``Rosenwasser'')
Comment 11. Louis F. Sokol (``Sokol'')
Comment 12. J. Howard Beales III (``Beales''), Professor, George 
Washington University
Comment 13. Peter Lagarias (``Lagarias'')
Comment 14. Harold L. Kestenbaum (``Kestenbaum'')
Comment 15. Walter D. Wilson (``Wilson''), Better Business Bureau of 
Central Georgia, Inc.
Comment 16. Connie B. D'Imperio (``D'Imperio''), Color Your Carpet, 
Inc.
Comment 17. Q.M. Marketing, Inc. (``Q.M. Marketing'')
Comment 18. David Gurnick (``Gurnick''), Kindel & Anderson
Comment 19. U-Save Auto Rental (``U-Save Auto Rental'')
Comment 20. The Longaberger Co. (``Longaberger'')
Comment 21. Direct Selling Association (``DSA'')
Comment 22. American Bar Association, Section of Antitrust Law 
(``ABA AT'')
Comment 23. Dennis E. Wieczorek (``Wieczorek''), Rudnick & Wolfe
Comment 24. Real Estate National Network (``RENN'') (representing 
Better Homes and Gardens Real Estate Service; Century 21 Real Estate 
Corp.; Coldwell Bankers Residential Group; Electronic Realty 
Associates (``ERA''); Realty World Corp.; Re/Max International; and 
The Prudential Real Estate Affiliates)
Comment 25. Attorney General Jim Ryan (``General Ryan), State of 
Illinois
Comment 26. Alan S. Nopar (``Nopar''), Bosco, Blau, Ward & Nopar
Comment 27. Snap-On, Inc. (``Snap-On'')
Comment 28. Steven Rabenberg (``Rabenberg''), Explore St. Louis
Comment 29. Douglas M. Brooks (``Brooks''), Martland & Brooks
Comment 30. Robert N. McDonald (``Commissioner McDonald''), 
Securities Commissioner, State of Maryland
Comment 31. Little Caesars (``Little Caesars'')
Comment 32. International Franchise Association (``IFA'')
Comment 33. Brownstein Zeidman & Lore (``Brownstein Zeidman'')
Comment 34. Jere W. Glover (``Glover''), Counsel for Advocacy, U.S. 
Small Business Administration (``SBA Advocacy'')
Comment 35. Jan Meyers (``Representative Meyers''), Chair, House 
Committee on Small Business
Comment 36. Neil A. Simon (``Simon''), Hogan & Hartson
Comment 37. Deborah Bortner (``Bortner''), Washington State 
Department of Financial Institutes, Securities Division
Comment 38. American Franchisee Association (``AFA'')
Comment 39. American Association of Franchisees & Dealers (``AAFD'')
Comment 40. Warren Lewis (``Lewis''), Lewis & Trattner
Comment 41. Century 21 Real Estate Corp. (``Century 21'')
Comment 42. John Hayden (``Hayden'')
Comment 43. North American Securities Administrators Association, 
Inc. (``NASAA'')
Comment 44. Robert L. Perry (``Perry'')
Comment 45. The State Bar of California, Business Law Section (``CA 
BLS'')
Comment 46. Mike Gaston (``Gaston''), Barkley & Evergreen
Comment 47. The Southland Corporation (``Southland'')
Comment 48. Medicap Pharmacies, Inc. (``Medicap'')
Comment 49. Rochelle B. Spandorf (``Spandorf''), ABA Forum on 
Franchising, Andrew C. Selden (``Selden''), David J. Kaufmann 
(``Kaufmann'')
Comment 50. Joyce G. Mazero (``Mazero''), Locke Purnell Rain Harrell
Comment 51. Mark B. Forseth (``Forseth''), Locke Purnell Rain 
Harrell
Comment 52. Forte Hotels (``Forte Hotels'')
Comment 53. R.A. Politte (``Politte'')
Comment 54. Politte (see supra, Comment 53)
Comment 55. Brown (see supra, Comment 9)
Comment 56. Wieczorek (see supra, Comment 23)
Comment 57. Scott Shane (``Shane''), Georgia Institute of Technology
Comment 58. Friday's
Comment 59. Carl E. Zwisler (``Zwisler''), Keck, Mahin & Cate
Comment 60. Wieczorek (see supra, Comment 23)
Comment 61. Enrique A. Gonzalez (``Gonzalez''), Gonzalez Calvillo Y 
Forastierei
Comment 62. Pepsico Restaurants International (``Pepsico'')
Comment 63. IFA (see supra, Comment 32)
Comment 64. Atlantic Richfield Company (``ARCO'')
Comment 65. David Clanton (``Clanton'')
Comment 66. Leonard Swartz (``Swartz''), Arthur Andersen & Co.
Comment 67. John R.F. Baer (``Baer''), Keck, Mahin & Cate
Comment 68. Lynn Scott (``Scott'')
Comment 69. Eversheds (``Eversheds'')
Comment 70. Brownstein Zeidman (see supra, Comment 33)
Comment 71. Penny Ward (``Ward''), Baker & McKenzie
Comment 72. Matthias Stein (``Stein'')
Comment 73. Byron Fox (``Fox''), Hunton & Williams
Comment 74. Papa Johns Pizza (``Papa Johns'')
Comment 75. Harold L. Kestenbaum (see supra, Comment 14)

[FR Doc. 97-4988 Filed 2-27-97; 8:45 am]
BILLING CODE 6750-01-P


</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>