Franchise Review

Quick access to capital Quick expansion Degree of control

4/16/2013 3:05:00 PM

Federal Law Register: NO o Nothing has to be filed with the FTC Disclosure document (FDD) that contains the language that they require Wont ask specifics of a case Will tell you why youre referencing it Just know the concepts that were in it o What did it stand for, what was its purpose, why was it in the class, etc. Significant control, federal rules o Quist o Continental: KNOW THIS SHIT The court found that yes, it should have been a franchise, it wasnt but lets just look at the contract, was there harm degree of sophistication o Kim: No, you arent sophisticated; you needed more protection and you didnt get it o Distinctions between brazil, mexico, Canada and US What is unique to the US Dual federal and state law here A little bit of business formation o Most of these are corporations o If theyre partnerships theyre LLPs Look at your written assignment What are some of the things you need to disclose Appendix A FTC Rule Elements that create a franchise: know these

o Fed: sophistication o State: mkting plan, or community of interest Franchise fee o Not always there o Could be imputed based on trxns or other items When does the franchise fee have to be paid? o Timing constraints State law: No Fed law: six months How much do you need to pay?

FTC Cases: Examples of taking a business arrangement and the FTC seeking an enforcement action Broad strokes: why did the FTC act? o IMall: not clear that the business model worked, could they supply you enough of the product, expectations of the business problem Disclosure: o Who has the disclosure requirements o When is it required Nothing at the federal level But if you disclose there are certain materiality requirements Estimate vs. Guarantee State level: you might Class 6 DD Case: They tried to cancel his franchise for tax fraud: fact pattern a conduct by DD which is inconsistent with the final action; they granted him an additional store, closed it after the indictment, then his conviction came down, he opened up another one, and then he got convicted and they closed him down o Could go either way based on franchisor conduct o But court says no; they can cancel the relationship

Southland: Nature of the relationship; the parties did not act in good faith o Multiple stores; notice to get caught up on bills, series of breaches; heavily influenced by state law in WA, court allowed it to proceed General Aviation/Cesna: issue: the notion of retroactivity; contract of two different time periods, whether 84 law would apply to a prior agreement, was there a material change in the contract o An amendment or alteration to the contract can be sufficient to get out from the impairment of contract aspect of constitutional law (wont take a whole brand new contract); distinction between this Changing names, changing owners, adding new terms to the agreement Contracts of a limited duration

Week 7:

Great American Chocolate Chip Cookie Company Contract rights Cookies without the right batter o Issue of value o Dissent: how critical could this be How well of an advocate you are of putting forth the idea of a reliable replicated product no matter what store you buy it at

Seaway: Contract or a franchise; what are some of the differences Marine supply: Duty to mitigate Failure to look at other businesses Southland: Arbitration SC: FAA trumps state law; states are not allowed to forbid arbitration in their state law of these relationships

o You cant provide rights or duties under the K theory, if it will impede arbitration clause Session 8: OConnor: fed arbitration act should apply in federal courts only o It wasnt intended to apply to state courts a procedural rule not a rule of substances o Majority does not concur; this is a dissenting view This becomes a smaller minority in other cases There are other statutes that regulate other industries o Caution; do some research on that industry Marketing Practices Act: o Court interprets this statute broadly Paying rent that wasnt specifically called out in the statute as an element regulated; but paying rent goes to the economics of the relationship and thus the income and profits Farm and Industrial Equipment Dealers o Literally interpreted o Did Toro lawn mowers constitute farm equipment and therefore were covered or not Household lawn equipment isnt in the case, it is not commercial so it is out Not spoken to, so not included What if a statute doesnt list as a grounds to terminate the death of the owner o Depends on if the statute has rights of inheritance built in (especially in industry specific) o Lanham v. Amoco Oil: death of the owner/franchisee is sufficient grounds to terminate Most franchise agreements are considered personal services agreements We havent talked about a statute for a particular product o But we have talked about specific classes of products

Week 9

Dealer stuff Federal law and the state law; why did the state law become enacted, what was the context, what are their relationships to one another

Week 10: Handout of the TM factors (8) Two Pecos Mcdonalds o Dont study in great depth o What was the essence of the courts ruling (just use the headnotes) What creates a trade mark and what is trade dress; where does trade dress fall in the litany of intellectual property More akin to the elements of Trademark than to the other two Pecos: trade dress as a body of law, but as a subset of TM International Arena: o International rights come from local law of that country

Week 11: Anti trust o Some of this is still developing o Can a TM and the goods be considered two separate products: YES (if youre a seller of multiple products) Can they be considered one product: YES (Baskin Robins) o Tying arrangement When you separate from parts and product and servicing you can do the tying shit (Kodak) Servicing a product could be illegally tied to the sale of the product itself and therefore service can be an independent product that you cannot tie

Caveat here: what business trxn can you tie legally and which can you not Warranty service: paid by the TM holder Customer pay service: paid by the customer (there is a greater relief that the customer should be able to freely choose the marketplace that they buy the service in)

Week 12 Dealer law can be applied to nonprofits Council for GS is still pissed Week 13: Remedies Vicarious liability o Relationship of the parties o Scope of liability o How does the concept interact with the concept of a franchisor/franchisee relationship Runs afoul at one level youre trying to accomplish by using franchisees instead of company owned stores is limited liability Individual is beaten up failing to take security precautions More like negligence, as to the conduct of other corporations No decisions were made, it was associations through the TM Ostensible liability because they only had to rely on national advertising

4/16/2013 3:05:00 PM

4/16/2013 3:05:00 PM