Complying with Item 12 Territory Disclosures

January 2013Articles The Franchise Lawyer

New “FAQ #37” released by the Federal Trade Commission (FTC) makes clear that a franchise system reserving the right to develop “non-traditional venues” within territories granted to franchisees must disclose it does not provide franchisees with an exclusive territory.

According to the FTC, a franchisor that reserves the right to open franchised or company-owned outlets at “non-traditional venues,” cannot state in Item 12 of its FDD that it grants an “exclusive territory.” A franchiser can however grant “exclusive territory” if it reserves the right to other channels of distribution within a franchisee’s territory. FAQ #37 clarifies that as soon as a franchisor reserves rights relating to the location of non-traditional venues within a franchisee’s territory the franchisor may not use the term “exclusive territory.”

Given that the renewal season is starting soon for those franchise systems with a December 31 fiscal year end, franchise attorneys should begin tailoring complaint disclosure language for their franchisor clients or employers now.