Wiggin and Dana's Franchise Law Blog

Name Change

According to this article, some Rhode Island liquor stores are faced with a dilemma -- either change their store names or risk losing their business licenses. The Rhode Island Department of Business Regulation has just begun enforcing a law passed in 2004 that prevents liquor stores from using names that suggest the store is part of a franchise. In Rhode Island franchise stores are not permitted to hold liquor licenses for the retail sale of alcohol. State authorities delayed enforcing the two-year-old law until several months after a federal appeals court declined a store’s request to stop the state from enforcing the law while a legal challenge is pending. The law is intended to protect consumer choices and ensure equitable pricing. With this intent in mind, a state official commented, “Retail consumers often assume chains are bigger operations with better selections, and perhaps lower prices.”

House Passes Bill Banning "Cheeseburger Lawsuits"

As reported by the Washington Times, the House of Representatives passed last week a bill banning lawsuits against food makers, sellers and trade associations for injuries related to weight gain, obesity or health conditions related to obesity. The nicknamed "Cheeseburger Bill" is the second bill Congress has tried to pass to ban obesity lawsuits; a similar bill stalled in the Senate last March. The Cheeseburger Bill, expected to be before the Senate next year, protects the food industry from an array of obesity-related lawsuits but does not ban lawsuits for violations of express warranties or violations of state or federal law that result in excessive calorie consumption.

A lawsuit pending in federal court in New York, in which two overweight teenagers claim that McDonald's violated New York's Consumer Protection Act through deceptive marketing practices, falls under the second exception of the Cheeseburger Bill. The Second Circuit Court of Appeals recently reversed a dismissal of the case and held that New York law did not require plaintiffs to show a link between their health problems and McDonald's food. The Court ruled that plaintiffs were only required to show that deceptive advertising was misleading and that plaintiffs suffered injuries as a result.

Legislating the Waistline

To give the public the opportunity to act more responsibly at fast-food counters and potentially reduce litigation, lawmakers plan to introduce a bill into Congress to require fast-food chain restaurants to prominently display calorie, fat and sodium content on food labels -- much like packaged food in grocery stores.

According to the Connecticut Post, legislators expect the battle to be difficult because the restaurant industry continues to lobby against nutritional information requirements. The article also profiles state legislators' efforts to control school-sponsored calories by removing soda and candy machines from grade schools and high schools.

More on the MEAL Act.

According to a study completed by two University of Arkansas researchers, America’s obesity problem may be related to a state of general ignorance regarding the fat and caloric content of food. The study concludes that most Americans substantially underestimate the amount of fat and calories in food consumed at restaurants, where nutritional information is not generally available. As one example, one researcher commented that most diners believe that a chef salad is a healthy choice because they do not realize that the addition of meats, cheeses and dressing can amount to as many calories as found in a hamburger and provide more than the daily recommended intake of fat. The researchers believe that their findings will support the Menu Education and Labeling Act introduced in Congress by Representative DeLauro of Connecticut. A copy of the MEAL Act can be found here.

Just When You Thought It Was Safe to Offer Fattening Foods Again

Reuters reports that lawyers continue to examine so-called Common Sense Consumption Acts (or cheeseburger bills) passed by several state legislatures in the last year to find the tiniest loophole through which their obese clients may pass. The cheeseburger bills attempt to limit the liability of big food for health problems related to obesity. Some bills, however, have been voted down by the state legislature or been vetoed by the governor. According to the article, nothing is for sure in this crazy, fat-filled world. Companies continue to develop healthy eating marketing strategies and adopt lower calorie, lower fat, lower carb menus to minimize exposure to lawsuits and to stay ahead of consumer trends.

Some Big Franchise News

A long-awaited announcement came yesterday that the FTC released its recommendations for amendments to the franchise rule in its aptly titled document -- Staff Report on the Trade Regulation Rule titled “Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures – (Franchise Rule).” The FTC will accept comments on the recommendations until November 12, 2004. Some of the principal recommendations according to the International Franchise Association include the use of electronic disclosure, the elimination of the first personal meeting disclosure rule and the disclosure of franchisor-related litigation. A copy of the Staff Report can be accessed here.

Massachusetts Smoking Ban Goes Statewide

Expanding the individual smoking bans adopted by Boston and 100 cities throughout the state, Massachusetts has put an indoor smoking ban into effect. The ban prevents smoking in any workplace -- including bars and restaurants -- and imposes a $100 fine on violators. Like other laws of its kind, the ban does not apply to private clubs or cigar bars. Massachusetts is the sixth state to enact a statewide ban. The others are Connecticut, New York, Delaware, California and Maine. The chief of staff of the Massachusetts Department of Health expects 95% voluntary compliance by Labor Day.

Meanwhile in Rhode Island, smokers appear to be losing precious indoor ground to a law that will make smoking in any workplace -- including bars and restaurants -- illegal by March 1, 2005. The governor announced that he signed the bill into law on July 2. The law exempts private clubs, small bars with C licenses and the state's two gambling facilities.

One Good Answer to the Question

Taking its name a little too far, a women's fitness club franchise company has been ordered to cease its illegal sales in the State of California. The California Department of Corporations has announced that the company, Why Weight Women's Total Fitness, Inc., has sold a number of franchises in California before its registration was approved. To make matters worse, the company's registration was rejected by the Department because one of its principals did not disclose a felony conviction for mail fraud or a $16.5 million judgment entered against him in connection with a different mail scheme. Another principal failed to disclose a 1997 bankruptcy.

China's Franchise Rule Draws Nearer (Maybe)

Chinadaily.com reports that the long-awaited franchise regulation in China will be promulgated this year. Major franchisor presence in China has been limited in most cases to direct ownership of units in a partnership with local Chinese company. The franchising arm of American restaurant and other franchise companies has not been permitted access to China because of its 1997 measures on franchising. These measures only allowed franchise operations for domestic companies. It is expected that the new franchise regulations will permit foreign companies to franchise in China. One caution from this article though: Although the Ministry of Commerce official has announced the promulgation of the franchise rule this year, this same promise was made in 2002 and 2003. In an interesting statement on the previous estimates, the Minister of Commerce official stated that "this time it is true . . . ."

Italy Passes Franchise Legislation.

This article in Franchise-Chat.com outlines the material provisions of Italy's new franchise disclosure legislation. One of the more disconcerting clauses requires the franchisor to "guarantee" a minimum term which would allow for amortization of the investment. The minimum term set forth in the legislation is three years.

House Passes Bill on Obesity Lawsuits

In a 276 to 139 vote, the House of Representatives passed the "cheeseburger bill," as it's become known, which offers protection to food manufacturers and fast-food franchises. The bill restricts plaintiff's rights to bring lawsuits and prohibits lawsuits which are based on health problems related to a plaintiff's consumption of legal, unadulterated food products. The White House has announced its support of the bill. It is unclear, however, whether the bill will pass the Senate which has defeated such litigation-restricting measure in the past. See also the NY Times article (registration required) on this bill.

California Joins Coordinated Franchise Review

California Joins Coordinated Franchise Review Process. Click here for the press release about California's participation in the Coordinated Franchise Review Process, a nationwide effort to streamline the registration process for franchisors by allowing them to obtain simultaneous review of their offering circulars in multiple states.

"But you never had to Play Goofy

"But you never had to play Goofy . . . " Colorado's Senate panel is set to review a bill designed to prohibit the so-called obesity lawsuits against fast food chains and other food manufacturers. A similar bill, named after its federal counterpart, the Common Sense Consumption Act, will be proposed later this term in Colorado. Both sets of legislation seek to completely insulate food manufacturers from obesity litigation, litigation that one of sponsoring Colorado senators called "goofy." So there you have it. It's goofy.

Smokers Welcome in NJ.

Smokers Welcome in NJ. The Indoor Clean Air Act failed to pass the New jersey legislature last month. The bill, as originally written, would have banned smoking in common areas of hotels, casinos, restaurants, bars and banks. It underwent changes to allow smoking in casino gambling areas, owner-operated bars, simulcasting rooms, tobacco bars. This version, however, was not enacted. A push to get the lame duck legislature to pass the bill failed. The American Lung Association this week gave New Jersey an "F" for its air quality conditions -- based in large part on New Jersey's failure to ban smoking in restaurants and bars. Meanwhile, in Georgia, a state senator intends to introduce a bill within the next two weeks banning indoor smoking in public places.

My Milkshake Brings All the Boys to the Yard.

My Milkshake Brings All the Boys to the Yard. The National Restaurant Association has issued a statement that it opposes the MEAL Act -- the federal bill (Menu Education and Labeling Act), if passed, would require restaurants to provide nutritional information on menus. Based on the number of choices at any given restaurants, changing menus and customer substitution of products, the Restaurant Association claims that the process is unmanageable and financially burdensome, even for large chains.

Bush Administration Announces Ban on Use of Downer Cattle

Bush Administration Announces Ban on Use of Downer Cattle. I don't know a lot about hamburger or beef in general but it seems like a cow that is so sickly that it can't stand or walk should not be used as food for human consumption. I'm no expert. In the past week since the discovery of the cow suffering from bovine spongiform encephalopathy, or BSE (commonly known as mad cow disease), many QSR chains have released statements proclaiming their long-standing policies prohibiting the use of downer cattle (cattle so ill that they are unable to walk) in their beef supplies (see Monday December 29 blog entries). And now, in an effort to boost consumer confidence in the American beef supply, President Bush and his administration have made this policy a nationwide regulation. The reform adopted by the White House places an immediate ban on the use of downer cattle in the human food chain. There must be significant costs associated with this new policy because previous legislation to ban downer cattle meat had failed to pass. In fact, the reform announced today apparently goes beyond the cattle industry's recommendations for a "test and hold" procedure for such meat. Other reforms in the industry will likely include regulations regarding the handling of brain and nervous system tissue, and a ban on the use of small intestine in the human food chain. Bon appetit.

Response to Mad Cow Disease

Response to Mad Cow Disease Discovery in U.S. On December 23, the media reported the discovery of a cow infected with mad cow disease in Washington state. The U.S. Secretary of Agriculture announced that the cow had been discovered before it could infect the beef supply. This was, however, the first reported case of mad cow disease in America. Wendy's released a statement that its meat was safe and that the infected cow was a "downer" cow, or a cow that could not walk. In its statement, Wendy's announced that it has a strict policy prohibiting the use of downer cows in its beef supply. Burger King and Arby's released similar statements that their meat was unaffected and that their policies prohibited the use of downer cattle for their beef supply.

Meanwhile, the stock market responded to the news by selling off shares related to beef products and restaurants. On Friday, Reuters reported that the stock price of Tyson Foods, a beef processor, was down 27 cents, or 2 %. McDonald's and Wendy's, however, appeared to be recovering. Business Week online also reported that the outlook was lowered for beef industry stock. Among the most important questions for determining the effect of this case on the industry is whether this discovery is an isolated incident.

Rx Depot Franchisee Defies Court

Rx Depot Franchisee Defies Court Order. Despite the Tenth Circuit's recent decision to deny a stay of the order that required all Rx Depot stores to close, the Long Island franchisee has vowed that his four locations will remain open. Rx Depot has ceased taking orders on the Internet and its offices are closed.

Rx Depot Seeks Stay of

Rx Depot Seeks Stay of Injunction. Rx Depot, the company that allows its customers to order prescription drugs from Canada at cheaper prices, has asked the Tenth Circuit Court of Appeals to stay the order of a federal judge in Tulsa requiring Rx Depot stores to shut down. After being ordered to shut down its 65 store fronts for allegedly violating federal law by providing consumers access to Canadian drugs, Rx Depot has appealed the order and sought a stay of the order during the pendency of the appeal. In its motion for a stay, Rx Depot claimed that American consumers would suffer irreparable harm if the injunction were permitted to stand during the appeal. The Tenth Circuit's decision will follow.

Senate Reviews FASB Rules. The

Senate Reviews FASB Rules. The Washington Post reports in this article about the concerns of small businesses with respect to the new FASB accounting rules.

Rx Depot Franchise Thriving. Despite

Rx Depot Franchise Thriving. Despite the federal lawsuit instituted against Rx Depot for illegally importing prescription medication from Canada, the Pittsburgh Business Journal reports that business at its Squirrel Hill, PA franchise, owned by George Risov, is booming. Mr. Risov owns franchise rights to Pittsburgh, Philadelphia, and parts of Ohio and New Jersey. Amid the legal controversy, however, the franchise expansion has been put on hold. While both state regulators and the federal lawsuit agree that the importing of drugs from Canada is illegal, legislators in both state and federal government are petitioning for legislation to address the costs of prescription medication and some are seeking legislation to allow purchases from Canada.

South Carolina to Review Regulations

South Carolina to Review Regulations on Small Businesses. The Charleston Daily Mail reports that South Carolina's Governor is looking to revise some state regulations as they apply to small businesses. Stating that the costs of compliance for some small businesses can amount to 20% of revenues, the Governor indicated that state agencies would be seeking out ways to include small businesses within a regulatory framework without imposing crushing costs of compliance.

House Approves Permanent Ban on

House Approves Permanent Ban on Internet Use Tax. In a victory for e-commerce, the House of Representatives voted to make permanent the 1998 ban on Internet use taxes imposed by states. The House also voted to require the nine states that impose such taxes (under a grandfather provision) to repeal such legislation. Although this vote does not affect sales tax on the Internet (which is prohibited unless the retailer has a substantial presence in the taxing state), it may prevent (if approved by the Senate) what some had feared to be an unworkable Internet tax scheme that could grind e-commerce to a halt.

China Likely to Allow Franchising

China Likely to Allow Franchising in 2004. The Taipei Times ran an article yesterday about McDonald's plans to develop franchises in China once the Chinese government lifts restrictions on franchised operations. Currently, companies like Yum!, McDonald's and Starbucks own or co-own through a joint venture all of their branded restaurants in China. The relaxing of the Chinese franchise restrictions will likely provide tremendous opportunities for franchisors looking to expand abroad. For an interesting article by Fraser Mendel outlining issues in franchising in China, click here.

Banning obesity lawsuits: A Senate

Banning obesity lawsuits: A Senate bill to be introduced today by Senator Mitch McConnell (R-KY) would protect defendants from obesity lawsuits. Fast food franchises and school districts have recently been targeted by legal action (see earlier W&D blog entry). McConnell explains, "This bill does not outlaw any of the traditional litigation nor does it immunize the food industry. But what it does do is nip in the bud this absurd new predatory practice" of class-action lawsuits against the food industry. Full article at the Washington Times. The text of a similar House bill (H.R. 339) proposed in June may be found here.

New labeling requirements address fat

New labeling requirements address fat content in groceries: The Food and Drug Administration announced yesterday that effective Jan. 1, 2006, nutrition labels on groceries will be required to list the trans fat content, in addition to total fat and saturated fat content. Trans fat are unhealthy trans fatty acids, which are often found in snacks and fried foods and are associated with a higher risk of heart disease. The new labels must state how many grams of trans fat food products contain, but this Chicago Sun-Times article questions whether this information will be useful if consumers do not understand what levels of trans fat consumption are recommended. The FDA's act regulating trans fat content can be found on www.fda.gov.