[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2595 Introduced in House (IH)]

103d CONGRESS
  1st Session
                                H. R. 2595

 To revise current Federal law and procedure to provide consumers with 
 comprehensive and accurate statistical information about franchising 
            and franchise practices, and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                              July 1, 1993

Mr. LaFalce (for himself, Mr. Dickey, Mr. Mfume, Mr. Wyden, Ms. Danner, 
  Mr. Towns, Mrs. Meek, Mr. McDermott, Mrs. Clayton, Mr. Torres, Mr. 
  Oberstar, Mr. Engle, Mr. Romero-Barcelo, Ms. Roybal-Allard, and Mr. 
Shays) introduced the following bill; which was referred jointly to the 
  Committees on Energy and Commerce and Post Office and Civil Service

_______________________________________________________________________

                                 A BILL


 
 To revise current Federal law and procedure to provide consumers with 
 comprehensive and accurate statistical information about franchising 
            and franchise practices, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Federal Franchise Data and Public 
Information Act''.

SEC. 2. FINDINGS AND PURPOSE.

    (a) The Congress makes the following findings:
            (1) Franchise business relationships represent a large and 
        growing segment of the Nation's retail and service businesses 
        and are replacing more traditional forms of small business 
        ownership in the American economy.
            (2) Despite the growing importance of franchising in the 
        American marketplace, there is little objective or reliable 
        statistical information available to the public on the number, 
        ownership, and operation of franchise businesses; and broad-
        based, objective data or investigations of franchise failures 
        are virtually non-existent.
            (3) While there is a void of reliable statistics, a large 
        amount of statistical information is routinely provided in 
        articles and talks about franchising and in promotional 
        material for franchise opportunities that seek to represent 
        franchises as uniformly successful and virtually risk free.
            (4) Inaccurate or misleading statistical information is 
        routinely attributed to Federal Government agencies and 
        reports, and data on franchise business compiled prior to 1987 
        by the United States Department of Commerce continue to be 
        widely cited, misrepresented or misused.
            (5) Franchisees may suffer substantial losses from 
        investment in a franchise business without accurate or reliable 
        information or with expectations based on false or misleading 
        statistical information regarding the operation and success of 
        franchise businesses.
    (b) It is the purpose of this Act to provide the public with 
comprehensive statistical information about franchising and the 
performance of franchise systems, to enhance the reliability of 
information made available to the public regarding franchise practices, 
and to assure that prospective investors have the information necessary 
to make an informed decision on whether to invest in a franchise 
business.

SEC. 3. NATIONAL FILING AND DATA COLLECTION.

    (a) Filing of Franchise Disclosure Documents.--
            (1) All persons, partnerships or corporations engaged in 
        selling or offering for sale any franchise, or any relationship 
        which is represented either orally or in writing to be a 
        franchise, whether within a state or in interstate commerce, 
        shall file with the United States Department of Commerce 
        (hereafter, the ``Commerce Department'') a copy of the 
        franchise disclosure document or circular for such franchise.
            (2) The disclosure document or circular to be filed under 
        this subsection shall be--
                    (A) the most recent version of such document or 
                circular which incorporates information that is current 
                as of the close of the franchisor's most recent fiscal 
                year; and
                    (B) the most restrictive version of such document 
                or circular, and of the franchise agreement, provided 
                by the franchisor to any prospective franchisee, in 
                terms of the requirements imposed on franchisees and 
                the limitations on the rights and remedies available to 
                franchisees in the franchise agreement.
            (3) The disclosure document or circular described in 
        paragraph (2) shall be filed annually at a time and in a manner 
        set forth in regulation by the Commerce Department.
            (4) The Commerce Department shall make available to the 
        Congress, the Federal Trade Commission and other Federal 
        agencies, as requested, copies of any disclosure documents 
        filed under this subsection, and shall establish procedures 
        under which such documents may be viewed by the public.
            (5) It shall be unlawful for a franchisor, subfranchisor or 
        franchise broker to make any statement or reference in 
        connection with any advertisement or disclosure document, or in 
        any oral or written statement or other representation to a 
        prospective franchisee, that a disclosure document has been 
        filed with the Commerce Department, or to make any statement or 
        representation that suggests or implies that the Commerce 
        Department or an other Federal agency has in any way reviewed 
        the content of the disclosure document, made any finding with 
        regard to the content of such document, or has in any way 
        passed upon the merits of, or given approval to, the franchise 
        opportunity.
    (b) Data Collection and Publication.--
            (1) The Commerce Department shall, not later than two 
        hundred and forty days after the date of enactment of this 
        section, establish procedures for the compilation, analysis and 
        publication of statistical information on franchise ownership 
        and national franchising practices. For purposes of such 
        procedures, the Commerce Department shall--
                    (A) use as the principal source of statistical 
                information on franchise ownership and practices the 
                disclosure documents for franchise opportunities 
                required to be filed annually under subsection (a);
                    (B) establish categories of statistical information 
                for annual data compilation and analysis, including but 
                not limited to: total numbers of franchisors and 
                franchise businesses, types of franchise businesses, 
                number of foreign franchisors, annual growth in 
                franchisors and franchise businesses, turnover in 
                franchise ownership and numbers of franchise failures;
                    (C) consult with Congress, the Federal Trade 
                Commission, the North American Securities 
                Administrators Association and other interested 
                organizations in identifying additional categories of 
                statistical information for purposes of data 
                compilation and analysis that--
                            (i) involve issues or information of 
                        potential interest to the public, or of 
                        specific concern to Federal and State 
                        regulatory agencies; and
                            (ii) are obtainable from disclosure 
                        materials filed in accordance with subsection 
                        (a) and from other public sources of 
                        information; and
                    (D) initiate periodic questionnaires of franchisors 
                or franchisees to obtain statistical information to 
                supplement information obtainable in disclosure 
                documents filed under subsection (a), or information in 
                connection with topics or categories of statistical 
                information identified under paragraph (C) for which 
                additional sources of information may be required, 
                except that no information obtained from such 
                questionnaires may be used in lieu of information 
                otherwise obtainable in a disclosure document filed 
                under subsection (a) of this section or in data 
                available in the Business Census pursuant to section 4 
                of this Act.
            (2) The Commerce Department shall, not later than eighteen 
        months after the date of enactment of this section, and then 
        not less than annually thereafter, publish a report on the 
        information and findings relating to franchise ownership and 
        national franchising practices required to be complied under 
        this subsection. Such report shall be transmitted to the 
        appropriate Committees of the Congress and shall be made 
        available to the public through the Superintendent of 
        Documents.

SEC. 4. CENSUS DATA ON FRANCHISE BUSINESSES.

    (a) The Bureau of the Census of the Department of Commerce 
(hereafter, the ``Bureau of the Census'') shall include in its Business 
Census for 1997, and in each such succeeding census, statistical 
information on the number, ownership and operation of franchise 
businesses.
    (b) The Bureau of the Census shall--
            (1) consult with the Federal Trade Commission to establish 
        criteria and procedures to identify franchise businesses to be 
        included in the Business Census; and
            (2) consult with the Congress, the Federal Trade Commission 
        and other interested organizations in establishing categories 
        of statistical information to be collected in the Business 
        Census relating to the number, ownership and operation of 
        franchise businesses.
    (c) Not later than two hundred and eighty days after the date of 
enactment of this section, the Bureau of Census shall submit a report 
to the Congress which shall describe the most cost effective and 
accurate means to gather and present the statistical information 
required to be collected pursuant to this section and identify the 
categories of data relating to franchise businesses to be included in 
the Business Census.

SEC. 5. RULES, REGULATIONS AND FEES.

    (a) The Secretary of Commerce (hereafter, the ``Secretary'') is 
authorized to make such rules and regulations as are necessary and 
appropriate to implement the provisions of this Act. Any rules, 
regulations, or orders issued pursuant to this authority may be 
established in such form or manner, may contain such classifications or 
differentiations, and may provide for such adjustments and reasonable 
exceptions as in the judgement of the Secretary are necessary or proper 
to effectuate the purposes of this Act, or to prevent circumvention or 
evasion of any rule, regulation, or order issued hereunder.
    (b) The Secretary is further authorized to collect a filing fee or 
other reasonable charge from any person, partnership or corporation 
subject to the filing requirement of section 3(a) of this Act for 
purposes of defraying costs incurred by the Commerce Department in 
connection with such filing.

SEC. 6. DEFINITIONS.

    For purposes of this Act:
            (1) The term ``advertisement'' means a communication 
        circulated generally by mail, or print media or electronic 
        media, or otherwise disseminated generally to the public, in 
        connection with an offer or sale of a franchise.
            (2) The term ``disclosure document'' means either the 
        disclosure statement required by the Commission in Trade 
        Regulation Rule 436 (16 CFR 436) as it may be amended, or an 
        offering circular prepared in accordance with Uniform Franchise 
        Offering Circular guidelines as adopted and amended by the 
        North American Securities Administrators Association, Inc., or 
        its successor.
            (3) The term ``franchise'' means--
                    (A) any continuing commercial relationship created 
                by a contract or agreement, whether express or implied, 
                oral or written, where--
                            (i) one person (the franchisor) grants to 
                        another person (the franchisee) the right to 
                        engage in the business of offering, selling or 
                        distributing goods or services, in which--
                                    (a) the goods or services offered, 
                                sold or distributed by the franchisee 
                                are substantially associated with the 
                                trademark, service mark, trade name, 
                                logotype, advertising, or other 
                                commercial symbol owned or used by the 
                                franchisor; or
                                    (b) the franchisee must conform to 
                                quality standards established by the 
                                franchisor for the goods or services to 
                                be offered, sold or distributed, and 
                                operate under a name that includes, in 
                                whole or in part, the franchisor's 
                                trademark, service mark, trade name, 
                                logotype, advertising, or other 
                                commercial symbol;
                            (ii) the franchisor--
                                    (a) communicates to the franchisee 
                                knowledge, experience, expertise, 
                                knowhow, trade secrets or other non-
                                patented information, regardless of 
                                whether it is proprietary or 
                                confidential;
                                    (b) provides significant assistance 
                                in the franchisee's method of 
                                operation; or
                                    (c) exercises significant controls 
                                over the franchisee's method of 
                                operation of the business; and
                            (iii) the franchisee, as a condition for 
                        obtaining or commencing operation of a 
                        franchise, is required to make, or to commit to 
                        make, payment or other consideration to the 
                        franchisor, or an affiliate of the franchisor, 
                        other than payment for commercially reasonable 
                        quantities of goods for resale at a bona fide 
                        wholesale price.
                    (B) a subfranchise; or
                    (C) any commercial relationship entered into in 
                reasonable reliance on representations, whether oral or 
                written, that the criteria of subsection (A) will be 
                met.
            (4) The term ``franchisee'' means a person to whom a 
        franchise is granted.
            (5) The term ``franchisor'' means a person who grants a 
        franchise or a subfranchise.
            (6) The term ``person'' means a natural person or any legal 
        entity recognized in law.
            (7) The term ``subfranchise'' means a contract or an 
        agreement by which a person pays a franchisor for the right to 
        sell, offer for sale or arrange the sale of franchises, or to 
        provide goods or services to franchisees.

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