Beguiling Heresy: Regulating the Franchise Relationship

As franchising grows both in the United States and abroad, cases of franchisor opportunism continue to increase. The franchise industry and many regulators insist that there is no evidence of systemic problems with franchising, and that any historical problems were addressed by the disclosure regime implemented with the passage of federal disclosure requirements thirty years ago. This paper sets forth a wide range of abusive practices found in hundreds of legal cases from around the globe and across franchise systems.

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Penn State Law Review
Summer 2004

Beguiling Heresy: Regulating the Franchise Relationship
Paul Steinberg and Gerald Lescatre


I. Introduction

II. Pre-Sale Issues
A. Fictive Kinship: The Franchise "Family"
B. Partnership
C. Franchise Success/Failure Rates
D. Earnings Claims
E. Targeting Prospective Franchisees
F. Labor Issues

III. Post-Sale Relationship Issues
A. Sourcing Requirements: Fiduciary & Antitrust Issues
B. Encroachment
C. Franchise Inspections & Audits

IV. Post-Relationship Issues
A. Selling the Franchise
B. Franchise "Renewal"
C. Goodwill
D. Good Faith and Goodwill: Hartford Electric v. Allen-Bradley

V. Issues During and After the Relationship
A. Good Faith and Relational Contracts: Fruits of the Contract
B. Good Faith
C. Franchise Litigation
D. Arbitration Clauses Can Encourage Abuse
E. State Law Waiver

VI. Regulatory
A. Regulatory Capture
B. FTC Regulation: Statutory Basis For Enforcement
C. GAO 2001 Report
E. Beguiling Heresy: Equitable Principles of Good Faith & Unconscionability
F. Cognitive Process and The Disclosure Document: Proposal for Change
G. Red Hand of Disclosure
H. FTC Disclosure: Shield for Franchisors
I. Electronic Disclosure

VII. Conclusion

Copyright © 2004 The Dickensen School of Law of The Pennsylvania State

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