F.T.C. Public Comment 23

In response to the Commission's solicitation of public comment on revisions to the Franchise Rule, we want to address the proposed definition of ""business opportunity"" as set forth in Part B.2.b. as follows:

FTC.jpg

U.S. Federal Trade Commission
May 11, 1997

Public Comment
Ernest R. Higginbotham, John Vernon, Karen B. Willcutts

Request for public comment on possible revisions to The Franchise Rule.

Comment #23

May 11, 1997

Federal Express

Donald S. Clark,
Secretary
Room 159
Federal Trade Commission
6th St. & Pennsylvania Ave., NW
Washington, DC 20580

Re: 16 CFR Part 436

Dear Sir:

In response to the Commission's solicitation of public comment on revisions to the Franchise
Rule, we want to address the proposed definition of "business opportunity" as set forth in Part
B.2.b. as follows:

"Business opportunity" is defined as any written or oral business arrangement,
however denominated, which consists of the payment of any consideration for:

A. The right or means to offer, sell, or distribute goods or services (whether or not
identified by a trademark, service mark, trade name, advertising, or other
commercial symbol); and

B. More than nominal assistance to any person or entity in connection with or
incident to the establishment, maintenance, or operation of a new business, or the
entry by an existing business into a new line or type of business.

We believe this definition is too broad. It could have the unintended consequence of including
both ordinary sales transactions and routine dealership relationships.

Example 1. A new business desires to sell widgets and approaches the manufacturer to
purchase widgets. The manufacturer may routinely provide its customers with credit terms,
point-of-sale advertising materials, general advertising of widgets and/or training for its
customers' employees. Has the manufacturer entered into a business arrangement which
consists of the payment of consideration for the right to sell goods and more than nominal
assistance to an entity incident to the operation of a new business?

Example 2. The manufacturer of widgets desires to use distributors to sell its product. A new
business seeks to become a distributor. Distributors are provided support including credit,
advertising, free samples, training, and an exclusive territory. Does this dealership agreement
constitute a business arrangement which consists of the payment of consideration for the right to
distribute goods and more than nominal assistance to an entity incident to the operation of a
new business?

As the proposed definition is worded, we believe the answer to the question in both examples
would be "yes." However, we doubt either situation is what we do, or should, think of as a
"business opportunity."

Also, the phrase "more than nominal assistance" is so vague as to provide little guidance in
determining whether one is engaging in the sale of a business opportunity. We are not sure the
solution is to raise the required assistance to something more than "nominal." Even if
"substantial" assistance were required, the vagueness would cause confusion for businesses
which would lead to a trap for the unwary or unnecessary expense to clarify a particular
situation.

Unfortunately, we do not have a substitute definition to propose. However, we believe the
focus of the definition ought to be more on the nature of what is being sold. In any event, we
believe this is an area that requires more study and input before being included in the Franchise
Rule.

As requested, we are enclosing a 3½ disk containing this comment.

Respectfully submitted,

Ernest R. Higginbotham
John Vernon
Karen B. Willcutts

ERH:dlc

For Review, see FTC “Table of Commenters”
http://www.ftc.gov/bcp/franchise/comments/tabcomm.htm


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Risks: F.T.C. Public Comments, United States, 1997, United States, 19970511 Comment 23

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