[Federal Register Volume 63, Number 225 (Monday, November 23, 1998)]
[Rules and Regulations]
[Pages 64616-64617]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-31203]
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FEDERAL TRADE COMMISSION
16 CFR Part 436
Disclosure Requirements and Prohibitions Concerning Franchising
and Business Opportunity Ventures
AGENCY: Federal Trade Commission.
ACTION: Grant of petition for exemption.
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SUMMARY: On April 16, 1998, the Commission published a notice in the
Federal Register soliciting comments on a petition filed by Navistar
International Transportation Corporation. The Commission now grants the
petition and determines that the provisions of 16 CFR Part 436 shall
not apply to the advertising, offering, licensing, contracting, sale or
other promotion of truck dealerships by Navistar International
Transportation Corporation.
EFFECTIVE DATE: November 23, 1998.
FOR FURTHER INFORMATION CONTACT:
Myra Howard, Attorney, PC-H-238, Federal Trade Commission, Washington,
D.C. 20580, (202) 326-2047.
SUPPLEMENTARY INFORMATION:
Before the Federal Trade Commission
Order Granting Exemption In the Matter of a Petition for Exemption from
the Trade Regulation. Rule Entitled ``Disclosure Requirements and
Prohibitions Concerning Franchising and Business Opportunity Ventures''
Filed by Navistar International Transportation Corporation.
On April 16, 1998, the Commission published a notice in the Federal
Register soliciting comments on a petition filed by Navistar
International Transportation Corporation (``Navistar''). Navistar
manufactures heavy-duty and medium-duty trucks, truck parts, and
military tractors, and enters into distributorship agreements with
businesspeople throughout the United States to sell and service
Navistar's trucks and parts. The petition sought an exemption, pursuant
to Section 18(g) of the Federal Trade Commission Act, from coverage
under the Commission's Trade Regulation Rule entitled ``Disclosure
Requirements and Prohibitions Concerning Franchising and Business
Opportunity Ventures'' (``Franchise Rule'').
In accordance with Section 18(g), the Commission conducted an
exemption proceeding under Section 553 of the Administrative Procedure
Act, 5 U.S.C. Sec. 553, and invited public comment during a 60-day
period ending June 15, 1998. No comments were received. After reviewing
the petition, the Commission has concluded that the Petitioner's
request should be granted.
The statutory standard for exemption requires the Commission to
determine whether application of the Trade Regulation Rule to the
person or class of persons seeking exemption is ``necessary to prevent
the unfair or deceptive act or practice to which the rule relates.'' If
not, an exemption is warranted.
The abuses that the disclosure remedy of the Franchise Rule is
designed to prevent are most likely to occur, as the Statement of Basis
and Purpose of the Rule notes, in sales where three factors are
present:
(1) A potential investor has a relative lack of business experience
and sophistication;
(2) The investor has inadequate time to review and comprehend the
unique and often complex terms of the franchise agreement before making
a major financial commitment; and
(3) A significant information imbalance exists in which the
prospective franchisee is unable to obtain essential and relevant facts
known to the franchisor about the investment.
The pre-sale disclosures required by the Franchise Rule are
designed to negate the effect of any deceptive acts or practices where
these conditions are present. The Rule requires franchisors to provide
investors with the material information they need to make an informed
investment decision in circumstances where they might otherwise lack
the resources, knowledge, or ability to obtain the information, and
thus protect themselves from deception.
Where the conditions that create a potential for deception in the
sale of franchises are not present, however, a regulatory remedy
designed to prevent deception is unnecessary. Our review of the record
in this proceeding persuades us that an exemption is warranted for that
reason. The Petitioner has convincingly shown that the conditions that
create a potential for a pattern or practice of abuse are absent; thus,
there is no likelihood of unfair or deceptive acts or practices in the
appointment of its truck dealership franchises.
The petition demonstrates that potential Navistar dealers are and
will continue to be a select group of highly sophisticated and
experienced businesspeople; that they make very significant
investments; and that they have more than adequate time to consider the
dealership offer and obtain information about it before investing. We
not in particular that Navistar has only about 450 dealers; that
prospective Navistar dealers usually have years of experience in truck
or other heavy duty equipment sales; that investment costs for Navistar
dealerships are approximately $1 million; and that prospective dealers
participate in an extensive application and approval process, lasting
anywhere from four months to a year, during which time a good deal of
information is exchanged between the parties.
As a practical matter, investments of this size and scope typically
involve knowledgeable investors, the use of independent business and
legal advisors, and an extended period of negotiation that generates
the exchange of information necessary to ensure that investment
decisions are the product of an informed assessment of the potential
risks and benefits. The Commission has reviewed the potential for
unfair or deceptive acts or practices in connection with the licensing
of motor vehicle dealership franchises on eight prior occasions since
1980, and found no evidence or likelihood of a significant pattern or
practice of abuse by any of the Petitioners. If any such evidence
exists, it has not yet been brought to the Commission's attention in
this or any of the prior proceedings.
Thus, both the record in this proceeding and all prior experience
to date with other Franchise Rule exemptions for automobile dealerships
support the conclusion that Petitioner's licensing of new truck dealers
accomplishes what the Rule was intended to ensure. The conditions most
likely to lead to abuses are not present in the licensing of Navistar
dealerships, and the process generates sufficient information to ensure
that applicants will be able to make an informed investment decision.
For these reasons, the Commission finds that the application of the
Franchise Rule to Petitioner's licensing of truck dealer
[[Page 64617]]
franchises is not necessary to prevent the unfair or deceptive acts or
practices to which the Rule relates.
Accordingly, the Commission has determined that the provisions of
16 CFR Part 436 shall not apply to the advertising, offering,
licensing, contracting, sale or other promotion of truck dealerships by
Navistar International Transportation Corporation.
It is so ordered.
By the Commission.
Issued: November 10, 1998.
List of Subjects in 16 CFR Part 436
Trade practices and franchising.
Donald S. Clark,
Secretary.
[FR Doc. 98-31203 Filed 11-20-98; 8:45 am]
BILLING CODE 6750-01-M
