Wednesday, June 25, 2008

Focus on Franchising

This posting was written by John W. Arden.

News and notes on franchising and distribution law:

 The ABA Forum on Franchising has announced the program for the 31st annual Forum on Franchising, October 15-17, 2008, in Austin, Texas. Entitled “Deep in the Heart of Franchising,” the main program will feature two plenary sessions and 24 workshops, covering topics ranging from advanced disclosure issues under the amended FTC franchise rule to franchising in Brazil, Russia, India, and China. Besides the two-day main program, the group is offering three intensive programs on Wednesday, October 14: the traditional “Fundamentals of Franchising” for those new to the field; “Developments under the Amended FTC Rule—Learning from Our Mistakes”; and “Evidentiary and Trial Issues in Franchise Cases.” The conference will be held at the Hilton Austin. Further information and online registration is available here.

 Four members of the ABA Forum on Franchising have been nominated to serve two-year terms on the group’s governing committee, starting in August 2009. Ronald K. Gardner of Dady & Garner, P.A. in Minneapolis has been nominated to succeed Edward Wood Dunham as Chair of the Forum Governing Committee. Nominated as members of the Government Committee are Harris J. Chernow of Chernow Katz, LLC in Horsham, PA; Deborah S. Coldwell of Haynes & Boone, LLP in Dallas; and Karen B. Satterlee of Starbucks Coffee Co. in Seattle. Forum members will vote on the nominations during the October 16, 2008, business meeting at the 31st annual Forum on Franchising in Austin, Texas.

 In his “Legal Update” column in the most recent Franchise Update magazine, Atlanta attorney Rupert M. Barkoff bemoans the United States’ “overly complex and extremely inefficient” franchise sales regulatory system, which involves both federal and state regulation, no federal preemption, and a lack of harmonization among state regulatory schemes. Although he has made similar complaints since 1981, the shortcomings of the U.S. system were brought home to him again when he recently performed work for Australian franchise companies entering the U.S. “Like the United States, Australia—a highly franchised country—relies upon disclosure as the primary way to prevent franchise sales fraud and to ensure that prospective franchisees can make informed purchasing decisions. However, the Australians have no registration procedures, and franchise sales are regulated only at the federal level. Thus, their system has avoided two of the pitfalls of ours. This makes the Australians highly critical of our system. As I have previously noted in various publications, they think we are ‘mad.’”

Barkoff does welcome the recent revision of the South Dakota Franchise Investment Law, which now requires mere “notice filing” of franchises and essentially eliminates the cumbersome review process. “For the record, I am not totally convinced that a complete elimination of franchise disclosure document review would be good. However, presently the system has erred on the side of too much review. Since there appears to be little interest in a federal-level review requirement preempting the state reviews, the remaining registration states might consider outsourcing the process to a single entity that would be charged with responsibility for performing this function.”

 A new government policy might prevent franchisors from having more than one venture in India at the same time, according to a June 23 alert from Field Fisher Waterhouse, a London law firm. The Foreign Investment Promotion Board (FIPB) of the Government of India has indicated that existing foreign investors can make investments in a new venture only if they are able to demonstrate that the new venture will not damage the prospects of their existing business partner in India. The restriction applies to new ventures in the same sector that may damage an existing joint venture or collaboration with an Indian party, according to law firm. This development may impact multiple-brand franchisors in the retail and hospitality fields as they attempt to take a second brand into India, according to the firm.

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