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What legal issues does franchising face as it approaches 2000?To find out, we asked those with their fingers on the pulse of theindustry: franchise attorneys Rochelle B. Spandorf, a partner withLos Angeles law firm Foley & Lardner, and Lewis G. Rudnick, apartner with Chicago franchise law firm Rudnick & Wolfe, whogave us the lowdown on the issues.
- Web encroachment. When you begin retailing over theInternet, you may find yourself encroaching on someone else'sexclusive territory, says Spandorf. "[Franchisors] may need tohave franchisees who have exclusive territorial protection sign anamendment to their contracts," she says, "and it maycause some difficulty in franchise relationships."
- New market encroachment. "A few cases have croppedup that raise questions about whether the franchisee has a claimfor bad faith when he or she feels a franchisor has put a new unittoo close to an existing unit or when it sells in anotherdistribution channel [such as supermarkets]," says Rudnick."The system expansion conflict issue will probably be resolvedby developing procedures to avoid conflict, rather than throughlitigation."
- Mandatory earnings claims. The North American SecuritiesAdministrators Association has been discussing implementing amandatory earnings claim disclosure in regulatory states, althoughit's questionable whether the Federal Trade Commission willadopt the policy nationwide. "I think this attention onearnings claims will educate franchisors so they don'tnecessarily expose themselves to greater liability by making theclaims," says Spandorf. "People don't realize thescope, breadth and creativity that can be applied to the creationof an earnings claim."
- Less state regulation. "It does not appear likelythat there will be much more state legislation passed to regulatefranchising, either in sales or relationships," says Rudnick.In fact, she adds, "There is a possibility that some of theexisting state laws might be modified to be less restrictive."States with bills pending that may minimize regulation includeIllinois and Iowa.
