The Overbroad Scope of Franchise Regulation: A Definitional Dilemma

• Published in: The Business lawyer Vol. 34; no. 3; p. 1387
• Main Author: Fern, Martin D
• Format: Journal Article
• Language: English
• Published: Chicago, Ill Section on Corporation, Banking, and Mercantile Law, American Bar Association 01-04-1979; American Bar Association
• Subjects: Commercial law; Court decisions; Franchises; Franchising; Regulation; State laws; State regulation; United States > US; New Jersey; California
• ISSN: 0007-6899; 2164-1838

Recently, abuses caused by the dramatic growth of the franchise method for distribution of goods and services have resulted in considerable legislative and regulatory activity. The main problem has been associated with defining the terms ''franchise'' and ''franchising.'' In order to prevent defining the terms in such a way that would limit the scope of any regulation, legislators have opted for very broad definitions. Several states have followed the example set by California and have enacted comprehensive laws which require registration and detailed disclosure of material terms of the franchise agreement and any ancillary agreements and detailed information about the franchisor.It is apparent that the broad definitions used in current statutes will result in a sweeping application of franchise statutes to more traditional business entities over which the regulation was not intended. Unless the definitions are more precisely outlined, the laws will be applicable to such things as concessions, distributorships, and trademark licenses. Another approach to defining ''franchising'' is to express it in terms of mutual interest in the marketing of goods and services between the licensee and licensor, referred to as the ''community of interest'' standard.