I

103D CONGRESS

1ST SESSION H. R. 1317

To revise current Federal law and procedure to provide consumers with

comprehensive and accurate statistical information about franchising and

franchise practices, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

MARCH 11, 1993

Mr. LAFALCE introduced the following bill; which was referred jointly to the

Committees on Energy and Commerce and Post Office and Civil Service

A BILL

To revise current Federal law and procedure to provide consumers with comprehensive and accurate statistical information about franchising and franchise practices, and

for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Federal Franchise

5 Data and Public Information Act’’.

6 SEC. 2. FINDINGS AND PURPOSE.

7 (a) The Congress makes the following findings:
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1 (1) Franchise business relationships represent a

2 large and growing segment of the Nation’s retail and

3 service businesses and are replacing more traditional

4 forms of small business ownership in the American

5 economy.

6 (2) Despite the growing importance of franchis7 ing in the American marketplace, there is little ob8 jective or reliable statistical information available to

9 the public on the number, ownership, and operation

10 of franchise businesses; and broad-based, objective

11 data or investigations of franchise failures are vir12 tually non-existent.

13 (3) While there is a void of reliable statistics,

14 a large amount of statistical information is routinely

15 provided in articles and talks about franchising and

16 in promotional material for franchise opportunities

17 that seek to represent franchises as uniformly suc18 cessful and virtually risk free.

19 (4) Inaccurate or misleading statistical informa20 tion is routinely attributed to Federal Government

21 agencies and reports, and data on franchise business

22 compiled prior to 1987 by the United States Depart23 ment of Commerce continue to be widely cited, mis24 represented or misused.
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1 (5) Franchisees may suffer substantial losses

2 from investment in a franchise business without ac3 curate or reliable information or with expectations

4 based on false or misleading statistical information

5 regarding the operation and success of franchise

6 businesses.

7 (b) It is the purpose of this Act to provide the public

8 with comprehensive statistical information about franchis9 ing and the performance of franchise systems, to enhance

10 the reliability of information made available to the public

11 regarding franchise practices, and to assure that prospec12 tive investors have the information necessary to make an

13 informed decision on whether to invest in a franchise busi14 ness.

15 SEC. 3. NATIONAL FILING AND DATA COLLECTION.

16 (a) Filing of Franchise Disclosure Documents—

17 (1) All persons, partnerships or corporations

18 engaged in selling or offering for sale any franchise,

19 or any relationship which is represented either orally

20 or in writing to be a franchise, whether within a

21 state or in interstate commerce, shall file with the

22 United States Department of Commerce (hereafter,

23 the ‘‘Commerce Department’’) a copy of the fran24 chise disclosure document or circular for such fran25 chise; and
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1 (2) The disclosure document or circular to be

2 filed under this subsection shall be:

3 (A) the most recent version of such docu4 ment or circular which incorporates information

5 that is current as of the close of the

6 franchisor’s most recent fiscal year; and

7 (B) the most restrictive version of such

8 document or circular, and of the franchise

9 agreement, provided by the franchisor to any

10 prospective franchisee, in terms of the require11 ments imposed on franchisees and the limita12 tions on the rights and remedies available to

13 franchisees in the franchise agreement;

14 (3) The disclosure document or circular de15 scribed in paragraph (2) shall be filed annually at a

16 time and in a manner set forth in regulation by the

17 Commerce Department;

18 (4) The Commerce Department shall make

19 available to the Congress, the Federal Trade Com20 mission and other Federal agencies, as requested,

21 copies of any disclosure documents filed under this

22 subsection, and shall establish procedures under

23 which such documents may be viewed by the public;

24 and
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1 (5) It shall be unlawful for a franchisor,

2 subfranchisor or franchise broker to make any state3 ment or reference in connection with any advertise4 ment or disclosure document, or in any oral or writ5 ten statement or other representation to a prospec6 tive franchisee, that a disclosure document has been

7 filed with the Commerce Department, or to make

8 any statement or representation that suggests or im9 plies that the Commerce Department or an other

10 Federal agency has in any way reviewed the content

11 of the disclosure document, made any finding with

12 regard to the content of such document, or has in

13 any way passed upon the merits of, or given ap14 proval to, the franchise opportunity.

15 (b) Data Collection and Publication—

16 (1) The Commerce Department shall, not later

17 than two hundred and forty days after the date of

18 enactment of this section, establish procedures for

19 the compilation, analysis and publication of statis20 tical information on franchise ownership and na21 tional franchising practices. For purposes of such

22 procedures, the Commerce Department shall:

23 (A) use as the principal source of statis24 tical information on franchise ownership and

25 practices the disclosure documents for franchise
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1 opportunities required to be filed annually

2 under subsection (a);

3 (B) establish categories of statistical infor4 mation for annual data compilation and analy5 sis, including but not limited to: total numbers

6 of franchisors and franchise businesses, types of

7 franchise businesses, number of foreign

8 franchisors, annual growth in franchisors and

9 franchise businesses, turnover in franchise own10 ership and numbers of franchise failures;

11 (C) consult with Congress, the Federal

12 Trade Commission, the North American Securi13 ties Administrators Association and other inter14 ested organizations in identifying additional

15 categories of statistical information for pur16 poses of data compilation and analysis that:

17 (i) involve issues or information of po18 tential interest to the public, or of specific

19 concern to Federal and State regulatory

20 agencies; and

21 (ii) are obtainable from disclosure ma22 terials filed in accordance with subsection

23 (a) and from other public sources of infor24 mation; and
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1 (D) initiate periodic questionnaires of

2 franchisors or franchisees to obtain statistical

3 information to supplement information obtain4 able in disclosure documents filed under sub5 section (a), or information in connection with

6 topics or categories of statistical information

7 identified under paragraph (C) for which addi8 tional sources of information may be required,

9 except that no information obtained from such

10 questionnaires may be used in lieu of informa11 tion otherwise obtainable in a disclosure docu12 ment filed under subsection (a) of this section

13 or in data available in the Business Census pur14 suant to section 4 of this Act.

15 (2) The Commerce Department shall, not later

16 than eighteen months after the date of enactment of

17 this section, and then not less than annually there18 after, publish a report on the information and find19 ings relating to franchise ownership and national

20 franchising practices required to be complied under

21 this subsection. Such report shall be transmitted to

22 the appropriate Committees of the Congress and

23 shall be made available to the public through the Su24 perintendent of Documents.
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1 SEC. 4. CENSUS DATA ON FRANCHISE BUSINESSES.

2 (a) The Bureau of the Census of the Department of

3 Commerce (hereafter, the ‘‘Bureau of the Census’’) shall

4 include in its Business Census for 1997, and in each such

5 succeeding census, statistical information on the number,

6 ownership and operation of franchise businesses.

7 (b) The Bureau of the Census shall—

8 (1) consult with the Federal Trade Commission

9 to establish criteria and procedures to identify fran10 chise businesses to be included in the Business Cen11 sus; and

12 (2) consult with the Congress, the Federal

13 Trade Commission and other interested organiza14 tions in establishing categories of statistical informa15 tion to be collected in the Business Census relating

16 to the number, ownership and operation of franchise

17 businesses.

18 (c) Not later than two hundred and eighty days after

19 the date of enactment of this section, the Bureau of Cen20 sus shall submit a report to the Congress which shall de21 scribe the most cost effective and accurate means to gath22 er and present the statistical information required to be

23 collected pursuant to this section and identify the cat24 egories of data relating to franchise businesses to be in25 cluded in the Business Census.
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1 SEC. 5. RULES, REGULATIONS AND FEES.

2 (a) The Secretary of Commerce (hereafter, the ‘‘Sec3 retary’’) is authorized to make such rules and regulations

4 as are necessary and appropriate to implement the provi5 sions of this Act. Any rules, regulations, or orders issued

6 pursuant to this authority may be established in such form

7 or manner, may contain such classifications or differentia8 tions, and may provide for such adjustments and reason9 able exceptions as in the judgement of the Secretary are

10 necessary or proper to effectuate the purposes of this Act,

11 or to prevent circumvention or evasion of any rule, regula12 tion, or order issued hereunder.

13 (b) The Secretary is further authorized to collect a

14 filing fee or other reasonable charge from any person,

15 partnership or corporation subject to the filing require16 ment of section 3(a) of this Act for purposes of defraying

17 costs incurred by the Commerce Department in connection

18 with such filing.

19 SEC. 6. DEFINITIONS.

20 For purposes of this Act:

21 (1) The term ‘‘advertisement’’ means a commu22 nication circulated generally by mail, or print media

23 or electronic media, or otherwise disseminated gen24 erally to the public, in connection with an offer or

25 sale of a franchise.
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1 (2) The term ‘‘disclosure document’’ means ei2 ther the disclosure statement required by the Com3 mission in Trade Regulation Rule 436 (16 CFR

4 436) as it may be amended, or an offering circular

5 prepared in accordance with Uniform Franchise Of6 fering Circular guidelines as adopted and amended

7 by the North American Securities Administrators

8 Association, Inc., or its successor.

9 (3) The term ‘‘franchise’’ means—

10 (A) any continuing commercial relationship

11 created by a contract or agreement, whether ex12 press or implied, oral or written, where—

13 (i) one person (the franchisor) grants

14 to another person (the franchisee) the

15 right to engage in the business of offering,

16 selling or distributing goods or services, in

17 which—

18 (a) the goods or services offered,

19 sold or distributed by the franchisee

20 are substantially associated with the

21 trademark, service mark, trade name,

22 logotype, advertising, or other com23 mercial symbol owned or used by the

24 franchisor; or
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1 (b) the franchisee must conform

2 to quality standards established by

3 the franchisor for the goods or serv4 ices to be offered, sold or distributed,

5 and operate under a name that in6 cludes, in whole or in part, the

7 franchisor’s trademark, service mark,

8 trade name, logotype, advertising, or

9 other commercial symbol;

10 (ii) the franchisor—

11 (a) communicates to the

12 franchisee knowledge, experience, ex13 pertise, knowhow, trade secrets or

14 other non-patented information, re15 gardless of whether it is proprietary

16 or confidential;

17 (b) provides significant assistance

18 in the franchisee’s method of oper19 ation; or

20 (c) exercise significant controls

21 over the franchisee’s method of oper22 ation of the business; and

23 (iii) the franchisee, as a condition for

24 obtaining or commencing operation of a

25 franchise, is required to make, or to com-
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1 mit to make, payment or other consider2 ation to the franchisor, or an affiliate of

3 the franchisor, other than payment for

4 commercially reasonable quantities of

5 goods for resale at a bona fide wholesale

6 price.

7 (B) a subfranchise; or

8 (C) any commercial relationship entered

9 into in reasonable reliance on representations,

10 whether oral or written, that the criteria of sub11 section (A) will be met.

12 (4) The term ‘‘franchisee’’ means a person to

13 whom a franchise is granted.

14 (5) The term ‘‘franchisor’’ means a person who

15 grants a franchise or a subfranchise.

16 (6) The term ‘‘person’’ means a natural person

17 or any legal entity recognized in law.

18 (7) The term ‘‘subfranchise’’ means a contract

19 or an agreement by which a person pays a

20 franchisor for the right to sell, offer for sale or ar21 range the sale of franchises, or to provide goods or

22 services to franchisees.

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