Accidental Franchising

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Presentation transcript:

Accidental Franchising March 7, 2019 Marcellus Chase 816-502-4647 Marcellus.Chase@KutakRock.com

Hypothetical Scenario Is This A Franchise? Hypothetical Scenario

Why Does It Matter? Registration & Disclosure Requirements Ongoing Relationship Obligations Termination Restrictions

Federal: The FTC Rule TM License Significant Control or Assistance Payment 16 CFR §436.1(h)

Federal: Exemptions & Exclusions Fractional Franchise Minimum Payment Others

State Disclosure / Registration Laws 15 States: Minnesota California New York Florida North Dakota Hawaii Rhode Island Illinois South Dakota Indiana Virginia Maryland Washington Michigan Wisconsin

State Franchise Relationship/Termination Laws Arkansas Minnesota California Mississippi Connecticut Missouri Delaware Nebraska District of Columbia New Jersey Hawaii Tennessee Idaho Virginia Maryland Washington Michigan Wisconsin

Other State Laws Business Opportunity Laws Industry-Specific Laws

Federal: The FTC Rule TM License Significant Control or Assistance Payment

Naked License vs. Franchise No Quality Controls Significant Control over Manner or Method of Operations Significant Assistance to the Business Operations

Significant Control or Assistance Degree of Control? Site/location approval Site design or appearance requirements Hours of operation Production techniques Accounting practices Personnel policies and procedures Promotional campaigns (requiring Franchisee participation or financial contribution) Restrictions on customers Geographic limitations Degree of Assistance? Training programs Accounting systems/software Management, marketing, or personnel advice Assistance in selecting site locations Providing or assisting in setting up hardware, software, or website Operations manual Licensing other IP: patented (or non-patented) systems, software copyrights, or specialized know-how

Revisit Hypothetical Scenario Is This A Franchise? Revisit Hypothetical Scenario

Is This A Franchise? Examples

Accidental Franchising March 7, 2019 Marcellus Chase 816-502-4647 Marcellus.Chase@KutakRock.com