The Franchise Memorandum

In response to a request for comment from the Federal Trade Commission on whether its Franchising Trade Regulation Rule should continue or be modified, Gray Plant Mooty has submitted a recommendation that the rule continue without modification. The Commission reviews its rules and guides periodically and solicits public comment to seek information about their costs and benefits, as well as their regulatory and economic impact. The rule makes it an unfair or deceptive act or practice for franchisors to fail to give prospective franchisees an FDD providing specified information about the franchisor, the franchise business, and the terms of the franchise agreement. The rule also prohibits related misrepresentations by franchise sellers. The rule became effective in 1979 and was amended in 2007.

Drawing upon its experience of preparing and modifying more than 175 FDDs every year, Gray Plant Mooty’s Franchise and Distribution Practice Group said the rule establishes a level playing field for franchisors, requiring all of them to make the same disclosures. It assures that prospective franchisees receive the same information in consistent formats, and also provides a basis for claims by franchisees who do not receive required disclosures. If the rule were repealed, Gray Plant Mooty argued, many more states may adopt franchise registration requirements. This would substantially add to the cost of compliance for franchisors. Gray Plant Mooty further argued that the Rule is well understood by the franchising community, and cautioned against opening it up to changes.