Focus on Franchising

This posting was written by Pete Reap, Editor of CCH Business Franchise Guide, and John W. Arden.

News and notes on franchising and distribution topics:

□ A provision of the recently-enacted health care reform legislation, the Patient Protection and Affordable Care Act, requires restaurants that are part of a chain with 20 or more locations doing business under the same name to disclose nutritional information. The new law requires restaurants to display the number of calories contained in standard menu items (1) on the menu listing the item for sale, (2) in a written form available on the premises upon consumer request, and (3) on menu boards. Establishments will be required to display a succinct statement concerning suggested daily caloric intake, as specified by the Secretary of Health and Human Services by regulation, to enable the public to understand the significance of the provided nutrition information. Compliance with the law’s restaurant labeling provisions, which are reported at CCH Business Franchise Guide ¶14,357, will be required upon completion of implementing regulations by the Food and Drug Administration (FDA). The FDA is required to publish proposed regulations within one year of the law’s enactment.

□ On April 20, the European Commission (EC) approved a revised Block Exemption Regulation and Guidelines on supply and distribution agreements, including franchise and other types of vertical agreements. Block exemptions create safe harbors for categories of agreements, relieving the contracting parties from having to individually analyze the legality of those agreements under the general EC rules regarding vertical agreements. As revised, manufacturers remained free to decide how to distribute their products. But in order to benefit from the block exemption, they can not have a market share in excess of 30% and their distribution or supply agreements must not contain any hardcore restrictions of competition, such as fixing the resale price or re-creating barriers to the European Union's single market. The new rules, which come into force in June, also specifically addresses the question of online sales. Once a distributor is authrorized, it must be fee to sell on a website as well as in their traditional shops and physical points of sales. Further details about the new block exemption can be found here on the Europa website of the European Commission. Text of the block exemption appears here.

□ South Africa has adopted a new franchise law as part of its Consumer Protection Act 68 of 2008, according to Field Fisher Waterhouse LLP. Key features of the initial provisions of the Act, which became effective on April 24, are (1) a mandatory 10-day “cooling off” period after the signing of a franchise agreement—during which time a franchisee may withdraw without incurring any liability and (2) a requirement that all franchise agreements be in writing and signed by franchisees. The definition of “franchise agreement” is broad and includes master franchise agreements and other arrangements (such as reseller agreements) that normally are not considered franchises. The main sections of the Act—which reportedly will extend fundamental consumer rights to franchisees—is expected to become effective on October 24, 2010. An article on the new law appears here on the Field Fisher Waterhouse website.