FTC to Publish Proposed Revised Franchise Rule

The Federal Trade Commission is seeking public comment on proposed revisions to its Trade Regulation Rule titled "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures" -- (Franchise Rule). The proposed revisions would reduce inconsistencies in federal and state disclosure requirements governing franchise sales, address changes in the marketing of franchises, such as the sale of franchises through the Internet, and provide expanded disclosures concerning franchise relationships. Comments will be accepted until December 22, 1999.

The Franchise Rule was promulgated in 1978 to give consumers more information to weigh the risks and benefits of investing in a franchise business. The rule requires franchise sellers to provide all potential franchisees with a disclosure document containing 20 categories of information about the franchise, its officials and other franchisees. If the franchisor chooses to make financial performance representations, the rule requires the franchisor to have a reasonable basis for those claims and also to provide a document to potential franchisees containing that substantiation.

In February 1997, the FTC published an Advance Notice of Proposed Rulemaking seeking public comment on several issues, including whether to revise the rule's disclosure requirements based upon the Uniform Franchise Offering Circular Guidelines and to address changes in the marketing of franchises, such as international franchise sales, and sales through the Internet.

In its Notice of Proposed Rulemaking (NPR), the Commission is now seeking public comments on specific proposed rule revisions. These proposed revisions include:

• changing the timing for making disclosures;

• clarifying the application of the rule to international franchise sales;

• expanding the rule to require additional disclosures, including pending franchisor initiated lawsuits involving the franchise relationship, franchisor use of gag clauses and, in some instances, trademark-specific franchisee associations;

• permitting disclosure through electronic media, including the Internet; and

• expanding the rule's exemptions to address sophisticated investors.

The Commission vote to publish the NPR in the Federal Register was 4-0.

Comments on the Franchise Rule must be received on or before December 22, 1999. Rebuttal comments must be received by January 31, 2000. The Notice also advises interested parties on how they may request a hearing. Written comments should be identified as "16 CFR Part 436" and sent to Secretary, Federal Trade Commission, Room 159, 600 Pennsylvania Avenue, N.W., Washington, D.C., 20580. Comments also can be submitted by e-mail addressed to "FRANPR@ftc.gov". In addition, comments can be submitted by telephone at the Commission's Franchise Rulemaking Hotline: 202-326-3573. All comments will be placed on the public record and will be available for public inspection on normal business days from 8:30 a.m. to 5:00 p.m., in Room 130 at the above address. Comments will also be placed on the Internet at the FTC's Web Site: http://www.ftc.gov (no period).

Copies of the Federal Register Notice announcing the request for public comment are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.