January 23, 2007
FTC Issues Amended Franchise Rule
The Federal Trade Commission approved an amended Franchise Rule on January 22, 2007, after a 12 year review, according to this announcement. Practitioners have been anxiously awaiting the release of the new Rule since the Staff Report was issued in August 2004. (Please see 2004 -- A Year in Review and Some Big Franchise News for previous blog posts on this topic).
The FTC has been kind to practitioners in the area who are just gearing up for the Offering Circular update season in their annual race to amend disclosure documents by April 1 for the majority of their clients. They will have plenty of time to prepare for and perform the extra work that will be generated by the Rule change. The new disclosure document format mercifully cannot be used until July 1, 2007; it must be used by July 1, 2008. Hopefully between now and July 2008, the differences between the new FTC Rule requirements and state law requirements will be resolved. The new Franchise Rule will apply solely to franchises. Business opportunities will be covered under a separate rule; temporarily under the requirements of the original Rule until new rules which are in the rule-making process are adopted. The new Franchise Rule adopts the Uniform Franchise Offering Circular Guidelines format developed by state administrators, with some changes, requiring more disclosure in some areas and less in others. Practical means to deliver the disclosure document electronically are permitted. The new Franchise Rule also makes clear that franchises to be located outside of the United States and its territories are not covered. The time for giving disclosures is also affected by the new Franchise Rule, including eliminating the first personal meeting trigger, but replacing it with some new triggers. The new Franchise Rule differs in some respects from the proposed version issued in August 2004 as the result of comments provided to the FTC.
Subject to review of the final language just issued, our summary of the significant changes that would be effected under the 2004 version should be a helpful starting point to the new Franchise Rule.
Posted by franchiselawblog at January 23, 2007 05:46 PM