Welcome. I'm glad you decided to join us for this presentation today in the introduction to franchising, my name is Mary Clapp and I am the CEO and attorney for Delafran LLC. I focus my practice exclusively on franchise licensing and distribution law representing both franchisors and franchisees. Today's course is an introductory course. It's just designed to give an overview of franchising and the franchise laws and help you to understand some of the nuances of the franchise laws and how they apply to the contractual arrangements between franchisees and franchisors. And we'll take a look at some of the things that are applicable to representing a franchisor or representing a franchisee. We're going to talk a little bit about the franchise industry. We're going to take a look at what what is a franchise practically and legally. We're going to talk about the dangers of accidentally franchising. We're going to do an overview of the federal franchise laws, an overview of the state franchise laws. Then we're going to talk about representing a client who wants to offer franchises. That would be the franchisor and then representing a client who wants to buy a franchise. That would be a franchisee. We're going to talk about where you can review franchise disclosure documents online, and I'm going to provide you with some additional resources. So the first let's talk about franchising as a part of the United States economy. And these statistics are taken from the International Franchise Association and Fran Fran data. And according to their 2022 Franchising Economic Outlook report. And this is looking at 2021 data. We're always a little bit behind. Approximately 775,000 franchise established establishments are providing over 8 million jobs and generating approximately $8 billion in revenue. As a part of the US economy. There are lots of types of businesses that are franchises. I know in most of us think about franchising. We think about sort of your chain quick service restaurant establishments or maybe chain fitness establishments, but there's a lot more than that that make up franchising. There are personal services, businesses, business service businesses, commercial and residential services, real estate, lodging and all in all, you know, while quick service restaurants make up the largest sort of category of franchises, there are lots of things that you you wouldn't expect to be a franchise that are, in fact, franchises. So let's talk about what is a franchise from a practical perspective. What we're talking about is a chain of establishments that are operating under the same brand and providing the same type of goods or services. So we have a national brand that has national recognition and that brand has a know how regarding those particular goods or those particular services. And then that national brand as a part of its expansion gets local owners. So these the local establishments are not owned by the national brand, they're owned independently by local owners. And then those local owners sort of duplicate the brand, duplicate the goods and services that are unique to the brand and operate under the same trademarks or logos as the national brand. So then we have that national brand becoming available in local communities where it was not available before. As we go throughout this presentation, we'll be talking about franchisors. Those are companies who are the owners of the national brand and know how, and they teach others how to do their business. And then franchisees are those who buy the opportunity to learn and then own and operate that business. Okay. So. From a legal perspective. Now, sort of moving from the practical perspective, from a legal perspective, we've got to make sure that we understand legally what the legal definitions of a franchise are, because it doesn't matter what the parties in the transaction call what they're doing with each other, whether they call it a license or a distributorship or a dealership or a master agent relationship, the labels that the parties give don't matter. The intent of the franchisor or licensor doesn't matter. The feelings of the parties don't matter. If it walks like a duck and quacks like a duck, it's a duck. If it meets the qualifications of a franchise under the franchise laws, it's a franchise. So first, let's take a look at what what establishes a franchise under the Federal Trade Commission franchise rule. So basically, what we have for the definition is we have a three legged stool. If we knock out any of the three legs, then it's not a franchise. If we have all three legs, it doesn't matter what our label is. It is a franchise. So first we're looking at is there a trademark that's common between the two? And we'll talk a little bit more about this in detail when we move over to the state side. But typically, if I'm operating Mary's Restaurant, if that's our brand and the licensee is operating a Mary's restaurant, we've all got the same trademark. If there is the the franchisee or licensor is providing significant control or assistance. That's our second leg. So what qualifies as significant control or assistance is often the the biggest area of debate. If we are making a determination in a in a legal proceeding about whether a particular arrangement is or is not a franchise. So there are lots of things. And we're going to be taking a look at some of those examples in just a little bit that can establish that significant control or assistance. A lot of weight is going to be given to the language that is in the contract between the parties. So what rights does the licensor or franchisor sort of retain and have the ability to sort of dictate or control aspects of the the unit's operations as. The final leg is the payment of $500 or more within six months of signing the agreement or the obligation to pay $500 or more within six months of signing the agreement. So again, if we can knock out any one of those legs, we can move outside of the franchise relationship from the perspective of the Federal Trade Commission franchise rule. But state rules are also applicable. So let's take a look at the state law variations. The and you're going to see that these things are can vary The factors that make up the legs in the state law scenarios can vary can vary slightly from state to state. So the first leg again, is the same as the federal. It's a trademark. But under some of the state laws, substantial association with the mark or maybe even any use of the mark, not just sort of the main signage for the the the the and the business name itself may establish that trademark leg. So a lot of distributorships can find themselves falling under the definition of a franchise in a particular state when they're the distributor of the particular good is using or marketing the brand name for that good. The second stool. The second leg of the stool in the state law variations we're looking at. Is there a marketing plan or a system or community of interest? There are lots of resources that go in detail about defining a marketing plan and a system, a marketing plan or a system and a or a community of interest. Those two standards that vary from state to state. Essentially, in states that use the community of interest standard they are looking at. Does the licensor benefit from the licensee's use of the marks and operation of the business? And does the licensee benefit from the licensors? Mark And business. So pretty much if you have a trademark in that scenario, it's going to be really difficult to fall outside of the community of interest. So if the particular state law uses a community of interest standard, then it's going to be really difficult to knock that leg of the stool out. Marketing plan or system is also depending on the state often interpreted very widely. And we're going to look at some some examples in just a moment. The final leg is payment of dollars. And again, the amount of dollars that that bring the state that that make a franchise that applicable in the under the under the particular state law vary from state to state. But payment of dollars from the licensee or distributor to the licensor is likely to establish that rule under many of the state law variations. Okay. So let's take a look at what happens if we've messed up the definition. If we thought that a leg of the stool was out, but in reality, a leg of the stool was in and this is what we call an accidental franchise where maybe the parties to a transaction thought they just had a license or a distributorship. But in reality, the arrangement between the parties met the federal or state definition of a franchise. So the first example is right more corporation versus Rico Corporation at 908 F second 128. This is a 1997 seventh Circuit case. In this case, an agreement prohibited the distributor from using the licensors name or trademark in any manner. So here the parties drew up the contract, believing they were sort of knocking that first leg of the stool out. But it allowed the distributor to state in writing that it was an authorized distributor for certain Rico products. And then in this case, their payment of excessive inventory and training fees was sufficient to establish the the dollar requirement. So it's clear in this case, if you take a look at it in detail, that the agreement between the parties, the manufacturer, believed that it was drawing up an agreement that brought it outside the purview of the franchise laws. But the limited use of the trademark and the fees paid for inventory and training were sufficient to bring it back within the purview of the laws. Okay. Another example 2 a.m. Equipment Co Inc versus Mitsubishi Caterpillar forklift America inc 152 3658 This is a seventh Circuit case from 1998. In this case, the purchase of service manuals over eight years satisfied the payment requirement, and this case resulted in a $1.525 million jury verdict in favor of the franchisee distributor against the manufacturer who was an accidental franchisor. So it is critical if you are going to be representing a client who wishes to expand outside of the franchise system using a license or distributor model that you get a good handle on the franchise laws and the risks associated with becoming an accidental franchise. So one more example. This is People versus Gonda 138 Cal app third 774. This is a 1982 case. In this case this is this one is significant because the the defendants were criminally and personally convicted of the unlawful sale of franchises by false pretenses based on their business offering for a registered management consultant contract where consultants paid $3,750 to join as an independent contractor and service clients of the licensor. There was no the evidence in the case and what was was argued on appeal was that there was no criminal intent of the defendants. And what the Court of Appeals ruled is that criminal intent was not necessary. It's no defense that the defendant did not know that his act was unlawful or that he believed it to be lawful. In any case, knowledge of the fact of non-registration is equivalent of knowledge of unlawful conduct and the punishment for violating the franchise investment law in under the California statutes is one year in jail plus a fine. So that's pretty significant for your clients to understand that they could be personally criminally liable if they mess up that definition of a franchise and they're offering a franchise without complying with the franchise registration and disclosure laws. Okay, so let's shift gears a little bit and let's move into the franchise laws themselves. So essentially, the franchise laws encompass four categories. So first, we have disclosure laws, then we have registration laws, then we have some franchise advertising laws, and then we finally have some relationship fairness laws. And we're going to take a look in general at those what what those laws are. So let's start with the Federal Trade Commission Act franchise rule. This is, you know, the the federal rule. And so it's going to apply in all 50 states. It's the federal rule can be found at 16 CFR parts, 436 and 437. And I've provided a link here for you, um, the ftc.gov, um, legal w-w-w-what ftc.gov. And this will take you to the full text of the franchise rule to the Federal Trade Commission's Franchise Rule Compliance Guide and the amended Franchise Rule. Faqs. One caveat to please take note of is that currently the Federal Trade Commission and I think the period for comment just passed at the in the first part of June, But the Federal Trade Commission recently recently had a request for comments regarding the franchise rule. And so we don't yet know how the franchise rule may change under what's the Federal Trade Commission reviews those comments. But but we can anticipate that some type of changes is possible in the near future. Okay. So what is the Federal Trade Commission Act franchise rule do, essentially? Primarily it is a disclosure rule. And so the the franchise rule requires preparation of a franchise disclosure document pursuant to a specified format of 23 items and delivery of that FTD to a prospect at least 14 calendar days prior to signing a franchise agreement or payment of any money. And this is, of course, subject to state exceptions, which we'll talk about in a moment. When calculating the 14 days do not count the day the FTD was delivered. Okay. So the the whether the franchise is one of those quick service restaurant chains that we're also familiar with or something that's a little bit more obscure, that's more a personal service kind of franchise. The same format is going to apply to each of those franchises, to every franchise, the same 23 items in the same order, providing the same specified information are going to be required. So we'll talk about that in just a little bit in a moment. So the state disclosure laws and these are again um so the the first the orange block the orange table of laws. These are states that have franchise registration and disclosure requirements. And then below the chart in the bluish gray box, there are states that have additional franchise disclosure laws but don't require registration of a document in the state. So there if we go up to the the peach colored table first and you'll notice that the various states are colored in different colors. So the orange states are states which have franchise examiners or regulators who are going to be reviewing the franchise registration application and the FTD and then determining whether there this that particular state requires revisions or or changes before it will issue a registration. Um, the black states are states that are sort of automatically effective and they may have examiners who come back and ask for something. But in general, once you submit the registration materials to the those states that are listed in black Indiana, South Dakota, Michigan and Wisconsin, those registrations become automatically effective. Hawaii, which is coated in purple, is a little bit of a hybrid between the two. Your registration in Hawaii becomes effective seven days after submission of the registration materials. But the state of Hawaii does have franchise examiners who may come back and ask for revisions or changes nonetheless. And then the remaining states, of course, California, Illinois, Maryland, Minnesota, New York, North Dakota, Rhode Island, Virginia and Washington all require registration be approved by the franchise examiners before it becomes effective. The states below which have franchise disclosure laws but not registration requirements are Florida, Iowa, Oklahoma, Oregon and Ohio. And then you'll notice that some of the states have next to them the the registration states participate in an organization called the North American Securities Administrators Association. And a couple of years ago, the NASA group developed an electronic filing depository to sort of help simplify this registration process for those of us practicing franchise law. And so if the particular state has next to it, then it means that you can use the NASA electronic filing depository for the registration and franchisors who do use the NASA franchise depository electronic filing depository, The system will have their their franchise disclosure documents become a public record available through NASA. Okay. So let's talk about the state disclosure, timing, exceptions. And there are three exceptions. So first, we're going to take a look at New York, Oklahoma and Rhode Island. And remember again that Oklahoma has disclosure laws, but not is not a registration state in these three states. We have to provide the franchise disclosure document to a prospect at the earlier of one your first personal meeting held to discuss the franchise or to ten business days before any agreements are signed or any monies are paid. The next exception is Michigan and Oregon. And again, remember, Oregon has disclosure laws but is not a registration state. You are required to provide the franchise disclosure document again ten business days before signing an agreement or accepting money. But the first personal meeting requirement is removed in those states. And then Iowa again, which is not a registration state but does have disclosure laws, requires disclosure of the FTD at the earlier of the first personal meeting or 14 calendar days before executing a contract or paying any money. Okay. So if you want to learn more about the state disclosure laws, the first stop is that organization we just talked about, the North American Securities Administrators Association, which we refer to as NASA and the NASA website. And I've provided links here for you. Provides lots of information on properly preparing a franchise disclosure document under the various state laws and in a manner which state examiners will find accessible. And so you can take a look at those resources on your own time. But I do encourage you to do that if you are representing a franchise or. Okay, so these next set of slides are just going to give you are going to be provided as a resource to you for where the state franchise laws can be found. I have gone through and sort of summarized for you kind of with some quick notes below each statute, what kinds of things are addressed in the state's franchise laws? But I would encourage you to actually review the laws and not rely on that summary because I might not have I might have missed noting a particular area that might be covered by the statute. So each of the statutes for the state registration laws first are provided in these first couple of slides and then the additional state franchise laws. And these are going to be states that have those what we call relationship laws are provided here for you as an overview. And again, if you are practicing franchise law, I do encourage you to actually take the time to review the state laws so that you are familiar with them, because some of the laws under the the or the requirements under the franchise laws are maybe counterintuitive to the way people commonly do business in a non franchise scenario. And so those laws are provided there for you to review. Okay, So let's talk about representing a client who wants to offer franchises. This is representing a franchisor. We're going to take a look at some practical considerations that don't involve legal, legal things. And then we're going to take a look at some briefly some legal considerations. So the first thing that is helpful is for you to help your clients assess, not assess your client. You know, for them, but help your clients understand that that they should individually assess whether or not they should franchise, because franchising is not going to be the right venue for expansion for every individual. So the first thing you want to look at is your have your clients consider is, is the business concept successful? So if success is not yet proven, if it's a new concept, it may not be the right time to franchise. It may be that your client should wait a year or two years, you know, however long it takes for them to demonstrate that the business concept and the format is is successful. Um, your client needs to. You need to know if they have detailed training systems and procedures. So again, lots of new franchisors develop their training systems and and procedures and flush those out as a part of the process of becoming a franchisor. So it doesn't necessarily mean if they don't have detailed training systems and procedures that they can't develop those or iron those out and, and build those training platforms and operations and systems manuals that that process of, of articulating the system standards can happen as a part of the the process of developing a franchise offering. But the the the systems need to be there. So if for example I have. Five locations, and each of those five locations looks totally different and offers different products and and offerings. They don't have set a set menu. Maybe we're talking a restaurant then. That's not really the makings of a franchise unless the franchise or license or the person who wants to offer the franchise has has said, okay, location A is what we're going to franchise. But but your client needs to really assess whether they have fleshed out and understood the systems and procedures that are going to be applicable to the brand. The next thing to assess from a practical perspective is whether your client or staff who have or are operating at the C level for your client are relationship builders. Because businesses that depend primarily on the client's persona or where the client is making top down control unilateral decisions and implementing everything from a sort of a master servant kind of relationship that might be great for the particular business locations and the corporate corporate operations. But that's not the way a franchise operates. And so if your client is not a relationship builder and not ready to relinquish some of that top down control, this might not be the best format for business expansion. Um, we also want to you want your client to assess whether he she or they can let go. If the client loves the business and needs to control everything. Again, this may not be the best format for expansion because while the franchisees who acquire units under the brand are going to have obligations to adhere to the system standards, they are going to be independent business owners. And every decision that they make may not be the same decision that your folks behind the brand, your clients would make. And so the client needs to be able to let go enough that that they can understand that those independent business units are going to operate, um, a little bit independently. The final factor is looking at whether your client has staff to support franchisees or plans to acquire the staff in a timely manner. And then, of course, you also want your client to evaluate whether it makes sense for the client if some of these factors sort of weigh in favor of your client may be choosing a different method of expansion. Have your client do the analysis to determine whether corporate expansion might be a better route, whether just investing in a new corporate location and hiring a manager where they can exercise that top down control might ultimately result in a more financial, financially beneficial arrangement. In certain cases. So your clients should go through that kind of practical analysis before they make a decision to jump right into franchising. Okay, So some key things that your client will need to start a franchise. Your client will need a trademark and sometimes an affiliate of the entity that will become the franchise or that is maybe operating one or more corporate units is going to be the holder of the of the trademark. And so you may need to license or assign that trademark. And you do want to make sure that your client gets a registration of the primary marks with the USPTO. That will be really important. There are some negative disclosures that have to happen if you don't have a federal registration and it can trigger the application of some business opportunity laws and registrations. For example, the state of North Carolina will require the the client to register under their business opportunity statute, even though what they're doing is is is offering a franchise if there is no federally registered trademark. Your client is going to need standardized trade, dress, standardized systems and procedures, staffing and resources to support franchisees. Your client is going to need an operations operations manual and training manual. And so this may be an area where you need to refer your client out for assistance with a consultant If you are not skilled in assisting them with preparing these operations and training manuals or they don't have adequate staff to put these manuals in place themselves. Your client's going to need a training plan that's going to be disclosed in item 11 of the franchise disclosure document. And your client should assess the technology that they're using because, of course, the last thing you want your client to do is, you know, six months after the first franchise sale, they're in a dispute with the franchisee because they don't think the franchisees reporting all their sales. So if you have adequate technology in place, that will eliminate a lot of those sort of distrust factors so that there's appropriate payment processing and streamlining technology. And so sometimes this is a chicken or the egg scenario. The client needs to sell some franchises in order to fund some of the technology development and that there there can be a plan in place for implementation of some things at a later date. But your client should definitely go through an assessment of technology needed for the franchise offering. I generally do recommend that a separate business entity be established to become the franchisor because you know you don't want to mix and mingle liabilities, so you don't want your client's operating entity where it's operating the entity that it is using to own and operate particular units to also be the franchisor as you can can mix the those the liabilities there will sort of have a crossover into to multiple assets. Your client is going to need a franchise disclosure document and franchise agreements and other ancillary agreements. Your client's going to want to plan and budget for expansion and marketing, including registrations as those are applicable. And your client should always get franchise sales, compliance training. So this is just key. When I do franchise sales compliance training in house to my clients, this typically takes about four hours. And so the you do want your clients to really understand in a non legalese way their obligations under the franchise laws because just preparing the documents for them is is ultimately going to lead them to get into trouble. It's a really complex set of requirements. Okay, so let's shift gears. A few minutes and talk about representing a client who wants to buy a franchise. This would be the franchisee. Um, so again, we're kind of we're going to kind of do a balancing analysis from a practical perspective because every individual who has money to invest in a business concept is not right to become a franchisee. So the first and biggest thing is sort of balancing that entrepreneurial spirit versus the ability to take direction. So in a franchise system, there's going to be lots and lots and lots of things that are dictated by the franchisor and they're going to be requirements by the franchisor. And so the franchisee has to be in this, this balanced plane and can't, um, they're not likely to be a good franchisee if they tip heavily one way or the other way. So the franchisee is going to need to be willing to accept direction and follow the system standards. But the franchisee is also going to need an entrepreneurial spirit. Um, most of the times a franchisee developing a franchise unit to, to operate under a particular franchise brand is going to have to do a lot of independent entrepreneurial work to get that business unit off the ground. Even with those directives that are coming from the franchisor or the franchise system. So there really needs to be a good balance there. And it doesn't mean that you as counsel to franchisees have to make that evaluation, but you should encourage your client to take a hard look at at themselves so that they make that that evaluation. And you want to look at, you know, you want your client to assess, do they really have enough funds to invest in this franchise operation? Item seven of the franchise disclosure document is going to give your client an estimate of the the amounts that will be needed to get this this business off the ground and open. But typically, your client should have significantly more than that in in capital available because oftentimes it takes it can take 18 months or longer for a franchise to become profitable enough so that it is funding the lifestyle of the the individual franchise owner. And your client is going to need to be willing to be inspected by the franchisor. Your client's going to also need to be have some some risk acceptance because the investment that the client is going to make into the franchise business is going to be significant. And that investment may be totally at risk and depending on the business. Many franchise agreements carry with them some non-competition covenants at the end of the franchise relationship. So if your franchisee client invests his or her life savings into this business and it's not, they're not able to make it profitable and they need to close it, they may be precluded from continuing the same type of business for a period of of of, you know, several years following the end of the relationship. So it's important that your client understands that, that they can support themselves while they're developing the franchise and that they they do have the the capital necessary to to both get the the business unit open and to fund the business unit during that development phase while while they're working towards it becoming profitable. And so when your client is sort of that's sort of the analysis that the client's going to go through for determining if they should be a franchisee at all or if maybe they should just get a business consultant and open their own thing. So the and I've had clients who've done that. I had a client who was evaluating a microbrewery franchise, and we went through a detailed analysis of the disclosure offering and the brand itself. And ultimately the client determined that the folks behind the brand, this particular brand, had been bought by a private equity group, that there weren't there weren't any people behind the brand who were going to be able to impart knowledge to the client regarding the the key thing that the client believed was necessary for for the unit to be successful. And that was the the ins and outs of brewing the beer. And so the client ultimately had a background in in brewing and. Went through the entire analysis and determined that he had more knowledge than the folks who were were going to be working with him at the franchisor. And so he just got a consultant to help him build out the restaurant location and opened his own thing. And so that's totally fine if you're your client ends up doing that. Sometimes the same upfront cost can be invested into to the client doing something that that he or she is passionate about on their own. But if we're going to stick with a franchise, there are more than 3000 very reputable franchise brands. And so your client should not feel like he or she has to settle or accept things about a particular brand that that don't sit well. So the client should really evaluate the franchise brand in detail. And we are doing a course that will be available in a few weeks after this course comes online. On evaluating a franchise offering for a franchisee. Where we're going, we'll go into some of these things, this process of evaluating a brand in more detail. But your client's going to want to assess in determining whether a particular brand is right for the client. The client is going to want to assess whether the client has passion for the brand and what it is that this type of business is going to do. So it doesn't mean that your client has to. For example, if the client's purchasing a cleaning franchise that your client really loves to clean. So that's not necessarily the case. But your client has to appreciate what's happening at the brand and have some passion for the type of business because starting a new business even under a franchise scenario. The client is absolutely going to have a a significant amount of hard work and there are going to be lots of hours and lots of work that's put into growing a business into a successful or profitable business. In most cases, just purchasing the franchise is not going to be sufficient. There's going to be a lot of hard work that has to go into that. And so you don't want your client to feel like the work he or she is putting into the the franchise unit is is a drudgery. You want your client to have enough passion for the brand that they don't see the hard work as a negative. Your client's going to want to review the franchise disclosure document and you're going to want to review the franchise disclosure document on behalf of your your client in detail. And you're going to want to provide your client with a due diligence plan and a risk analysis. So it's really important that you point out the things that are risk factors in the franchise disclosure document. It doesn't mean that you're making a decision that this is a bad investment, that your client shouldn't purchase this particular brand. They may very well, even if there are a number of risk factors, your client may analyze those risks and determine that, yeah, it's totally acceptable for there to be a that risk analysis. They're willing to accept that level of risk and move forward with the franchise acquisition. But, but you are going to want to provide them with a due diligence plan. And you'll see that many times if you've looked at a franchise disclosure document, the franchise disclosure document, together with all of the agreements, can sometimes be more than 250 pages in Most clients, even clients with sophisticated business backgrounds, are not often equipped to dig through 250 pages and figure out what the risks are that are associated with the legal language in those contracts. And so it's really important that you go through the and break that down into a due diligence plan for your client to to understand the risks associated with the acquisition. And you should look at trademark and branding considerations. So I had a client who in was considering purchasing a green or sort of a non-toxic cleaning franchise. And we looked at the trademarks. The the franchisor had a trademark registration. So that was disclosed in the, the franchise disclosure document. But, but when we did an assessment of the brand and the trademarks for the client, what, what came up on the Google search when you put in the name of the brand much more popular and higher in the rankings in the search engines than the particular franchise brand. It turned out was a that a a brand of marijuana had the same name as the franchise brand. And while that might be perfectly fine for some clients, for this particular client, that was a big enough thing that that the client didn't want to move forward with this particular brand. And so it's really important that you do an assessment of the trademarks in the the branding, whether the trademark registrations are actively, accurately and actively effective. So I've had numerous evaluations that I have done where the franchise or. Disclosed in item 12 of the FTD that that the franchisor did in fact have a trademark registration, where to the contrary, the franchisor didn't have a trademark registration and instead the trade, the the franchisor had actually been issued a final office action by the USPTO refusing to grant a trademark registration because of a likelihood of confusion with a pre-existing mark. So it can be. Lots of things can come up when you're assessing the trademarks and the brand. I had another scenario where I assessed a particular franchise brand for a client, and it turned out that the the franchisor didn't have a registration on the principal register for the USPTO, but instead had filed for registration on the supplemental register. And what that means is that the supplemental register is sort of gives the franchisor some of those notice considerations. You know, people are deemed to have notice that the franchise brand is using that mark, but it's generally a sign of a weak mark. And in this particular circumstance, the the mark at issue was merely descriptive. So it had it used the term USA, which of course you can't stop anyone from using the term USA. It's and and then was descriptive. It contained a term that was descriptive of the type of goods that were offered by the franchise business. So it was Widget USA, for example. And Widget USA doesn't offer much protection to a a client because if the client opens a widget USA location and then I move in next door and I open a business called Sarasota Widgets because the terms are merely descriptive, you can't stop me from operating right next to you. As you know, Sarasota Widgets or American widgets. I could say American widgets, while your widget USA and we're right next door to each other. So it's really important that your client that you do an analysis of the trademarks and the brand and provide that to your clients as a part of the franchise evaluation. Um, the other thing is litigation history. So item three of the franchise disclosure document does require the franchisor to disclose certain types of litigation, and those are instances in the last ten years where the franchisor or its folks behind the brand have been accused of violation of the franchise laws or of fraud or deceptive trade practices or in litigation in the last 12 months against a franchisee. And so there are. That doesn't encompass all the kinds of litigation that may be really important for your client to understand. So, for example, let's assume that your client, the the brand at issue has a model that relies heavily on some independent contractors to provide some services to the the operating units. And we do a search and it turns out that ten units inside the system have been, um, have had actions brought for violation of the Fair Labor Standards Act where folks are claiming that they are actually employees instead of independent contractors. That would be really significant and your client should disclose that kind of litigation. I mean, the franchisor should disclose that kind of litigation because it's material to the determination of a franchisee in making the decision to acquire a franchise. But oftentimes those kinds of things are left out. Similarly, there's a big um, there are lots and lots of cases in the last 2 or 3 years where litigation has been brought over the website of a particular brand and whether that website is, um, accessible to folks with disabilities, either hearing disabilities or seeing disabilities and the, and whether the websites violate the Americans with Disabilities Act. Under most franchise brands, the franchisor is going to control the websites for the brand and not the franchisee or the the unit owner. So that kind of understanding about whether there has been litigation regarding those kinds of issues or there is outstanding issue litigation regarding those kinds of issues is really important. Your client is really going to want to talk to existing and former franchisees and determine whether they were happy with the franchise brand. And those franchisees are required to be disclosed in item 20 of the FTD or as an exhibit to the disclosure document. Um, your, your client is going to want to do an assessment as a part of this, these discussions with other franchisees about whether the other franchisees are making money, whether this ultimately is a business where the franchisee has potential to to make it profitable. Um, and then, of course, your client is going to want to again assess whether the client can earn a living after the franchise relationship ends. And we talked a little bit about that already. Okay. So whether you are representing a franchisor or a franchisee, you might find it helpful to review some other franchise disclosure documents. So, for example, when I have a a new franchisor come to my office and they're looking to open. A franchise in a particular type of industry. The very first thing that we do is pull the franchise disclosure documents for any competitors that we identify as offering franchises in the same type of business. And so we may want to look at some some other ftds. And so similarly, if I have a franchisee and we've done an evaluation of a. A particular franchise brand, even if the client is really leaning towards purchasing this particular franchise, even if there aren't a significant number of red flags, it may make sense for the franchisee to look at some competitors just to have a cost perspective, to understand how the competitors in the same space are operating and how many of those competitors there are, um, that may overlap into the territory the franchisee is considering acquiring. So the, the franchise disclosure documents become sort of public documents or public records when they are registered in a registration state. So the first place we can search is the NASA site and then the following states also make the franchise disclosure document available online. California, Indiana, Minnesota and Wisconsin. The one caveat for California is you have to you have to search by the franchisors legal name, which may be different from the brand name. So you'll want to sort of look at that before you run a search in California if you can't find the particular brand. Um, okay. Some additional franchise resources. These are resources that I rely on on a daily basis. Um, the first and primary resource for me that I really could not do without as a franchise practitioner is the American Bar Association Forum on Franchising. This group is amazing. We have a listserv where if you're running into a question or you're not quite sure how to handle a situation, you can reach out to other franchise practitioners and they are so gracious with their time and understanding and and willingness to help. Um, there is a forum each year that's held live with lots and lots and lots of educational sessions. In the past, materials from previous forums are available online on the the the forum on franchising web page. When you become a member of the ABA forum on franchising and then they have two publications, the Franchise Law Journal Journal and the franchise lawyer. And so this is just an enormous resource. We also have the International Franchise Association, which is an excellent resource, and they have an annual convention each year and multiple smaller conventions and programs. And then they have an annual legal symposium in May of each year. Again that North American Securities Administrators Association website. You can find those links in the earlier slides. The USPTO, you want to, of course, check trademarks. And then for folks representing a franchisor, it might be really important for your client to have an independent national trademark search run that's looking at more than just registrations with the USPTO, but also looking at common law usage of marks or similar marks to to the particular brand. And I often use a company called TM Ready and have their website link there. So I hope this has been informative for you and that you have enjoyed this course. If you need to reach out to me with questions, I am available by email at mary@delafran and you can visit my website at www.delafran.com. Thank you.