[Federal Register Volume 61, Number 250 (Friday, December 27, 1996)]
[Notices]
[Pages 68266-68267]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32900]
=======================================================================
-----------------------------------------------------------------------
FEDERAL TRADE COMMISSION
Disclosure Requirements and Prohibitions Concerning Franchising
and Business Opportunity Ventures
AGENCY: Federal Trade Commission.
ACTION: Grant of petition for exemption.
-----------------------------------------------------------------------
SUMMARY: On April 15, 1996, the Commission published a notice in the
Federal Register soliciting comments on a petition filed by
Freightliner 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 Freightliner Corporation.
EFFECTIVE DATE: December 27, 1996.
FOR FURTHER INFORMATION CONTACT: Myra Howard, Attorney, PC-H-238,
Federal Trade Commission, Washington, D.C. 20580, (202) 326-2047.
[[Page 68267]]
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
Freightliner Corporation.
On April 15, 1996, the Commission published a notice in the Federal
Register soliciting comments on a petition filed by Freightliner
Corporation (``Freightliner''). Freightliner manufactures heavy-duty
and medium-duty trucks, truck parts, and military tractors, and enters
into distributorship agreements with business people throughout the
United States to sell and service Freightliner'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. 553, and invited public comment during a 60-day period
ending June 14, 1996. 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 provides 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 Freightliner 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
note in particular that Freightliner has a relatively small number of
dealers, approximately 232; that prospective Freightliner dealers
usually have years of experience in truck or other heavy duty equipment
sales; that investment costs for Freightliner dealerships are
approximately $4 million; and that prospective dealers participate in
an extensive application and approval process, 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 six 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
Freightliner 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 franchises is not necessary to prevent the unfair or deceptive
acts or practices to which the Rules 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
Freightliner Corporation.
It is so ordered.
Issued: December 6, 1996.
By the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 96-32900 Filed 12-26-96; 8:45 am]
BILLING CODE 6750-01-M
