[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]


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FEDERAL TRADE COMMISSION


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 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