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The Franchise Memorandum

Lathrop GPM Franchise Team Argues FTC Rule Does Not Require Material Changes; Evidence Does Not Support Need for Revision

As a part of its decennial review of the Franchise Rule, which is required by a series of executive orders, the FTC invited interested parties to participate in a Virtual Public Workshop on November 10, 2020 to discuss potential changes to the Rule. Lathrop GPM was one of nine law firms and independent lawyers asked to comment on proposed changes, in particular, changes to the FDD format. While acknowledging that current FDD requirements do result in long documents, and applauding efforts by the FTC and NASAA to make the document easier to navigate and understand, Lathrop GPM cited available research indicating that the vast majority of franchisees surveyed indicate that they do read and understand FDDs and franchise agreements. The research does not support the need to change the FDD format.

In response to the FTC’s request for comments on the full range of potential changes to the Franchise Rule, which surfaced during the Workshop and in comments submitted to the FTC in 2019 as a part of the Rule Review, Lathrop GPM submitted comments challenging the desirability of mandating Financial Performance Representations. The firm’s comments also argued that by requiring the use of a Summary Disclosure Document, as well as a full FDD, the goals of the disclosure rule would be undermined. If readers understood that an executive summary contains the most important information, many or most would not read the complete FDD. Moreover, despite its length, the FDD is itself a summary of information, so any further summarizing would create the impression that the additional information is likely to be only marginally relevant.

Lathrop GPM’s comments were one of 122 comments submitted. They may be found here.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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