Wednesday, February 13, 2008

Focus on Franchising

This posting was written by John W. Arden.

News and notes on franchising and distribution law:

 Due to the efforts of Chicago lawyers John R.F. Baer of Sonnenschein, Nath, and Rosenthal and Joe Sheyka of DLA Piper, the Illinois State Bar Association has decided to form a Standing Committee on Franchising and Distribution Law. The group’s Board of Governors approved the proposal for a standing committee on January 25 and will appoint a 10-member committee “at an early date,” according to Baer. A petition to create the standing committee stated that every other major state with franchising legislation “has a state bar committee that actively represents this area of practice and coordinates legislative developments with the state authorities responsible for franchising.”

 Extensive amendments to the Australian Franchising Code of Conduct (CCH Business Franchise Guide ¶7001A) will come into effect on March 1, 2008. In anticipation of that event, the Australian Competition & Consumer Commission on February 8 issued a new fact sheet “to help franchisees and franchisors understand their rights and responsibilities” relating to the amendments.

In brief, the fact sheet highlights: (1) new disclosure rules, including the requirement that a franchisor provide a prospective franchisee with a disclosure document, a copy of the franchise agreement, and a copy of the Franchising Code at least 14 days prior to the execution of the franchise agreement or payment of fees; (2) a requirement that the franchisor must disclose materially relevant facts in writing within 14 days of becoming aware of the facts; (3) a mandate that the franchisor must create a disclosure document within four months of the end of each financial year; (4) conditions under which a long-form disclosure document must be used; (5) a requirement of providing names and contact details of past franchisees in long-form disclosure documents; and (6) a requirement of providing in a long-form disclosure document the history of the franchise site and territory.

The Franchising Code now applies to overseas franchisors who grant only one franchise or master franchise within Australia. Text of the new fact sheet appears here on the Australian Competition & Consumer Commission web site.

 The Wall Street Journal released its 2008 Franchise High Performers list on February 12. The list of 25 high performing franchise brands included franchise concepts ranging from flooring and carpeting business and a chain of pet hospitals to a property damage assessment business. According to the Journal, the list demonstrates that the “fast-food industry’s power-grip on the franchising industry is slowly loosening, as industries serving the consumer and residential markets are expanding rapidly and performing well financially.” In fact, there are now 230 lines of business that franchise, according to FRANdata, an Arlington, Virginia research firm that assisted with the survey. Despite this finding, the list did include eight restaurant franchise systems (Bojangles, Culver’s, Denny’s, Friendly’s, Jimmy John’s, The Melting Pot, Nathan’s Famous, and Ponderosa Steakhouse). The list identified “brands that are well established, exhibit overall financial health, and have a proven record of franchising success.” The list and further information about the franchisors appears in the Wall Street Journal Online.

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