Federal Register / Vol. 62, No. 40 / Friday, February 28, 1997 / Proposed Rules 9115

1The transcript of the September 1995

Conference is cited as ‘‘[name of commenter], TR

at ll;’’ the transcript of the March 1996

Conference is cited as ‘‘[name of commenter], TR2

at ll.’’ 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.

2The 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 ll.’’ 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.

3See, 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.

4See, e.g., General Ryan, Comment 25, at 1;

Bortner, Comment 37, at 1; NASAA, Comment 43,

at 1.

5See, 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.

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 51⁄4 or a 31⁄2

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 EMail address: ‘‘FRANPR@ftc.gov’’. 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.1

The Rule Review elicited 75 written

comments.2 The comments generally

express continuing support for the Rule,

stating that pre-sale disclosure is a costeffective way to disseminate material

information to prospective franchisees

that otherwise might be unavailable.3

Pre-sale disclosure is also necessary to

prevent fraud 4 and to reduce the level

of post-sale franchise relationship

disputes.5 Most commenters state that

the Rule’s benefits outweigh the costs
9116 Federal Register / Vol. 62, No. 40 / Friday, February 28, 1997 / Proposed Rules

6See, e.g., Dub, Comment 2, at 2; McBirney,

Comment 7, at 2; ABA AT, Comment 22, at 8–9.

7See, 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.

8See, 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.

9See, e.g., Wieczorek, Comment 23, at 1; Maxey,

TR at 36.

10See, 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.

11See Dub, Comment 2, at 1–2; Nopar, Comment

26, at 1–2. See also Century 21, Comment 41, at 1.

12See, e.g., Simon, TR at 224; Perry, TR at 263.

13See, e.g., Wieczorek, Comment 23, at 2; IFA,

Comment 32, at 4.

14This 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.

15Restaurant 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.

imposed on consumers.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.

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.7 They

contend that the UFOC’s disclosures are

superior to those of the Rule, and the

UFOC’s format is more ‘‘user friendly.’’ 8

This group of commenters further

believes that revising the Rule to mirror

the UFOC guidelines would promote a

more uniform, national disclosure

standard.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.10

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.11

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.12 Commenters also recommend

that the Commission continue to permit

a three-year phase-in of audited

financial statements.13

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.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 finetuned.

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 ‘‘gagorder’’ provisions by franchisors that

may effectively bar some franchisees

from sharing their experiences with

prospective franchisees. The

Commission is concerned that such gagorders 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 startup 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.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.

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
Federal Register / Vol. 62, No. 40 / Friday, February 28, 1997 / Proposed Rules 9117

16See, 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.

17See, e.g., DSA, Comment 21, at 2.

18See, e.g., D’Imperio, Comment 16, at 1; DSA,

Comment 21, at 2.

19See Rabenberg, Comment 28.

20See DSA, Comment 21.

21See Brooks, Comment 29.

22See, 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).

23See, e.g., Brownstein Zeidman, Comment 33, at

3–4; Perry, TR at 262.

24See, e.g., Q.M. Marketing, Comment 17, at 2;

Wieczorek, Comment 23, at 3; CA BLS, Comment

45, at 10.

25See Brownstein Zeidman, Comment 33, at 4.

See also Huke, TR at 235.

26See Brownstein Zeidman, Comment 33, at 8.

See also Gaston, Comment 46, at 1.

27See, e.g., General Ryan, Comment 25, at 2;

Commissioner McDonald, Comment 30, at 6;

Bortner, Comment 37, at 3; NASAA, Comment 43,

at 2.

28See Hayden, Comment 42, at 2.

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.16

Commenters note that business

opportunities and franchises are distinct

business formats 17 and that it is

confusing to use the term ‘‘franchise’’ to

describe both formats.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.

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, 19 one

association that arguably represents the

interests of some business opportunity

sellers, 20 and one attorney who has

represented multilevel distributors. 21 At

this time, the record is insufficient on

this issue.

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 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:

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.23 Further,

they believe that trade show promoters

lack the ability to monitor franchisorexhibitors’ sales practices at shows 24

and do not have any incentive to

mislead consumers.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.26

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.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.28

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 franchisorexhibitors’ 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
9118 Federal Register / Vol. 62, No. 40 / Friday, February 28, 1997 / Proposed Rules

29See, e.g., Lagarias, Comment 13, at 1–2; SBA

Advocacy, Comment 34, at 55; AFA, Comment 38,

at 1; AAFD, Comment 39, at 6.

30See, e.g., Pennell, Comment 5, at 1; Brown,

Comment 9, at 3–129; Lagarias, Comment 13, at 3;

AFA, Comment 38, at 1.

31See, e.g., Lagarias, Comment 13, at 2; AAFD,

Comment 39, at 7; Selden, Comment 49, at 4.

32See, e.g., ABA AT, Comment 22, at 5–6.

33See, e.g., Lagarias, Comment 13, at 2; AFA,

Comment 38, at 9; Perry, Comment 44, at 5.

34See, 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.

35See U-Save Auto Rental, Comment 19, at 2;

IFA, Comment 32, at 12–13; Simon, Comment 36,

at 6.

36See, 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.

37See, 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.

38See, e.g., Dub, Comment 2, at 4; SRA

International, Comment 8, at 2; RENN, Comment

24, at 2; Nopar, Comment 26, at 4.

39See, e.g., D’Imperio, Comment 16, at 11; Simon,

Comment 36, at 5.

40See, 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.

41See, 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.

42See, e.g., Bortner, Comment 37, at 3; NASAA,

Comment 43, at 3.

43See Lewis, Comment 40, at Exhibit G

(compilation of sales, cost, and profit information

on 145 franchise systems in 70 business categories).

44See, e.g., U-Save Auto Rental, Comment 19, at

2; RENN, Comment 24, at 1.

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.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.30 They also contend that

disclosure of earnings information will

reduce the level of false and

unsubstantiated oral and written

earnings claims.31 Several commenters

also contend that the franchise

marketplace and competition would

benefit from the free flow of earnings

information.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.33

Franchisors generally oppose

mandatory disclosure of earnings

information.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 35 and may be inaccurate.36 In

addition, they contend that not all

franchisors have the contractual ability

to gather earnings data from their

franchisees.37 These commenters are

also concerned that earnings

information collected from franchisees

may have little predictive value to a

prospective franchisee 38 and that such

information may be misinterpreted as a

guarantee of future performance.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.40 For

these reasons, many commenters believe

that mandating earnings disclosures

would have a negative impact upon the

franchisor-franchisee relationship.41

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.42 Thus, in theory,

prospective franchisees can find

franchise systems that voluntarily

disclose earnings information.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.

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.44

In addition, prospective franchisees are

free to discuss earnings and other

performance issues with former and

existing franchisees.

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.
Federal Register / Vol. 62, No. 40 / Friday, February 28, 1997 / Proposed Rules 9119

45See, e.g., IFA, Comment 32, at 15–16; Zwisler,

Comment 59, at 6; Tifford, TR at 199. See generally

Mazero, Comment 50.

46See, e.g., Clanton, TR2 at 169; Baer, TR2 at 160–

61; Wulff, TR2 at 154.

47See, e.g., Wieczorek, Comment 60, at 3–5;

Pepsico, Comment 62, at 2–3; IFA, Comment 63, at

4; Clanton, TR2 at 169.

48See, 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.

49See, 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.

50See, e.g., Zeidman, TR2 at 109; Brennan, TR2

at 165; Mills, TR2 at 203.

51See Pineles, TR at 180–81.

52Co-branding raises a number of disclosure

issues. For example, should the purchaser of a cobranded 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?

53The 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 § 436.2(g).

54The term ‘‘personal meeting’’ means a face-toface meeting held for the purpose of discussing the

sale or possible sale of a franchise. See 16 CFR

§ 426.2(o).

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.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.

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;46 (2) the

disclosures required by the Franchise

Rule are aimed at the domestic market;47

(3) foreign franchise purchasers are

sophisticated and do not need the Rule’s

protections;48 (4) attempting to comply

with the Franchise Rule in foreign sales

might result in the dissemination of

inaccurate or misleading information;49

and (5) application of the Franchise

Rule to international sales would

unnecessarily impede competition.50

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.’’ 51

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).52

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’’ 53 or

the first ‘‘personal meeting.’’ 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.

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
9120 Federal Register / Vol. 62, No. 40 / Friday, February 28, 1997 / Proposed Rules

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 EMail 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:

‘‘FRANPR@ftc.gov.’’ 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
Federal Register / Vol. 62, No. 40 / Friday, February 28, 1997 / Proposed Rules 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
9122 Federal Register / Vol. 62, No. 40 / Friday, February 28, 1997 / Proposed Rules

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’’)
Federal Register / Vol. 62, No. 40 / Friday, February 28, 1997 / Proposed Rules 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

16 CFR Part 601

Proposed Notices of Rights and Duties

Under the Fair Credit Reporting Act

AGENCY: Federal Trade Commission.

ACTION: Publication of proposed

guidance for forms, and request for

public comment.

SUMMARY: The Federal Trade

Commission is publishing for public

comment three notices that it is required

to prescribe under recent amendments

to the Fair Credit Reporting Act. Under

those amendments, which become

effective September 30, 1997, consumer

reporting agencies will be required to

provide: A summary of rights under the

law to consumers; a notice of

responsibilities under the law to parties

who regularly furnish such agencies

with consumer information, and a

notice of responsibilities under the law

to parties who obtain consumer reports

from the agency. Under the statute, a

consumer reporting agency will be in

compliance with these requirements if it

provides notice forms substantially

similar to those prescribed by the

Commission.

DATES: Comments must be received on

or before March 31, 1997.

ADDRESSES: Comments should be

addressed to: Office of the Secretary,