US Franchise Law

HYPO:

Option 1 Snuggie, Inc.:

You client, Snuggie, Inc., holds the patent and trademark for the ever popular, stylish, and all-inclusive loungewear, Snuggies. They have decided to develop and franchise Snuggie kiosks in malls and airports. They just returned from attending the Vegas Lounge Apparel Tradeshow to introduce and advertise their new "Snuggies for Puppies" line and to sell kiosk franchises. In attendance were potential franchisees from states throughout the US, some of which are franchise filing states and others with business opportunity laws. How would you advise Snuggie, Inc. on starting their kiosk franchises?

OR Option 2 Snorkel Bob:

You recently received a phone call from an old client, Snorkel Bob (who you represented several years ago when forced to start out in criminal law). He has developed a successful tiki-hut themed "booze cruise" operation that he runs in the North Shore of Waikiki, Hawaii and hopes to franchise this idea to other tourist beach locations in the U.S. He attended the Party Boat Tradeshow in Las Vegas, not coincidentally the same weekend as the Jimmy Buffet concert, and found several interested investors from California, Texas, Florida, and of course the Jersey Sho know what problems he will face trying to sell his franchises in each of these states and possible others (some are franchise filing states and others have business opportunity laws). Please advise. re, NJ. Snorkel Bob knows nothing about franchise law and wants to

1. Why does the express lack of federal preemption under the Amended FTC Franchise Rule pose compliance problems for franchisors, and their attorneys, that operate nationwide? What drafting issues will arise from the FDD to franchise nationwide?

2. How do the initial franchise filing, material change amendments, and renewal process differ among the "franchise filing states"? Specifically, what would be different about filing in Hawaii vs. a state that applies close scrutiny to the FDD? What about business opportunity states?

3. Many states do not define 'material change' and a wide spectrum exists between inconsequential items, like typos, and material changes, like a change in royalty percentage owed. Therefore, what advice regarding filing a material change amendment would you provide to a franchisor that just won an arbitration decision against a franchisee?

4. If you represent a large company (franchisor) subject to SEC filing requirements who is in talks to be bought out or merge with another company, could that company (franchisor) continue to sell franchises and comply with both the FTC and the SEC filing requirements? What role do the materiality definitions and obligations that result from those definitions play in this scenario?

5. Ifa "very material" change occurs, why would it be wise for a franchisor to advise prospective franchisees of the change even if you could comply with the FTC by waiting until the end of the quarter to amend?

6. How would you advise a franchisor client looking to continue to operate and sell additional franchises operating in Michigan and Indiana that recently underwent a material change? What about California?

7 . If a franchisor and its franchisee modify an existing franchise agreement does this give rise to any new disclosure or registration duties? Who is the protected class under franchise sales laws?