Federal Trade Commission:

Enforcement of the Franchise Rule

GAO-01-776: Published: Jul 31, 2001. Publicly Released: Jul 31, 2001.

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Franchises are business arrangements that require payment for the opportunity to sell trademarked goods and services. Business opportunity ventures do not involve a trademark, but require payment for the opportunity to distribute goods or services with assistance in the form of locations or accounts. The Federal Trade Commission's (FTC) Trade Regulation Rule on Franchising and Business Opportunity Ventures (Franchise Rule) requires franchise and business opportunity sellers to disclose financial and other information to prospective purchasers before they pay any money or sign an agreement. In addition, FTC enforces section 5 of the FTC Act, which addresses unfair or deceptive acts or practices. Over the past several years, Congress has debated the need for a federal statute to generally regulate franchises, including issues that arise between franchisors and franchisees after the franchise agreement is signed. Much of the debate centers on the relative bargaining power franchisees have when dealing with their franchisors over various issues, such as the location of new franchised outlets or the termination of franchise relationships without good cause and advance, written notice. This report reviews FTC's enforcement of its Franchise Rule and discusses various franchise relationship issues. GAO found that FTC has focused most of its Franchise Rule enforcement resources on business opportunity ventures because, according to FTC staff, problems in this area have been more pervasive than problems with franchises. The extent and nature of franchise relationship problems are unknown because of a lack of readily available, statistically reliable data--that is, the data available are not systematically gathered or generalizable. Absent such data, opinions varied as to the need for a federal statute to regulate franchise relationships. If Congress believes it needs empirical data before considering franchise relationship legislation, it could commission a study that would (1) design and implement an approach for collecting empirical data on the extent and nature of franchise relationship problems and (2) examine franchisor and franchisee experiences with existing remedies for resolving disputes.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matter for Congressional Consideration

    Matter: If Congress believes that it needs empirical data before considering franchise relationship legislation, it could commission and fund a study that would (1) design and implement an approach for collecting empirical data on the extent and nature of franchise relationship problems (2) examine franchisor and franchisee experiences with existing remedies for resolving disputes.

    Status: Closed - Not Implemented

    Comments: Congress has not yet acted on this Matter for Consideration.

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