[Federal Register Volume 65, Number 138 (Tuesday, July 18, 2000)]
[Proposed Rules]
[Pages 44484-44485]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-17994]


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FEDERAL TRADE COMMISSION

16 CFR Part 436


Trade Regulation Rule on Disclosure Requirements and Prohibitions 
Concerning Franchising and Business Opportunity Ventures

AGENCY: Federal Trade Commission.

ACTION: Proposed Rule; Commission Solicits Demonstration Projects for 
Electronic Pre-Sale Disclosure.

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SUMMARY: The Federal Trade Commission (the ``Commission'') solicits 
proposals to conduct demonstration projects implementing the proposed 
instructions for electronic dissemination of disclosure documents set 
forth in Sec. 436.7 of the Commission's October 22, 1999, Notice of 
Proposed Rulemaking.

DATES: Proposals to conduct demonstration project start on July 18, 
2000.

ADDRESSES:  Petitions for permission to implement a demonstration 
projects should be addressed to: Federal Trade Commission, Office of 
the Secretary, Room 159, 600 Pennsylvania Ave., NW., Washington, DC 
20580.

FOR FURTHER INFORMATION CONTACT: Steven Toporoff, (202) 326-3135, 
Division of Marketing Practices, Bureau of Consumer Protection, Federal 
Trade Commission, Washington, DC 20580.

SUPPLEMENTARY INFORMATION: On October 22, 1999, the Commission 
published a Notice of Proposed Rulemaking (``NPR''), soliciting comment 
on a wide-range of proposed amendments to the Franchise Rule. One 
proposal would permit franchisors to comply with the Franchise Rule by 
furnishing prospective franchises with disclosures electronically, 
including through the Internet. Among other things, the proposal would: 
(1) Require franchisors to obtain a prospective franchisee's prior 
consent to receive disclosure electronically; (2) permit a prospective 
franchisee the right to obtain a paper disclosure document until the 
time of sale; and (3) require franchisors to provide a prospective 
franchisee with a paper summary

[[Page 44485]]

document, which among other things, includes the disclosure document's 
table of contents, as well as an admonition to download or otherwise 
preserve document's table of contents, as well as an admonition to 
download or otherwise preserve the electronic disclosure document. The 
proposed instructions would also specify the general formal for an 
electronic disclosure document, ensuring that the disclosure document 
could be downloaded or otherwise preserved, and that the disclosures 
are clear, conspicuous, and do not contain extraneous or distracting 
features (such as animation or pop-up screens). The proposal would 
permit franchisors to insert navigational tools that aid in the 
reviewing a disclosure document, including scroll bars, search 
features, and internal links.
    The NPR comment period closed at the end of January, 2000. Forty 
comments, including five rebuttal comments, were submitted, several of 
which address the Commission's proposed Internet compliance 
instructions. Commission staff are currently analyzing the various 
comments and are preparing recommendations to the Commission on 
Internet compliance and other disclosure issues.
    The Commission recognizes that, to date, few franchisors have 
sought to use the Internet or other electronic technologies to comply 
with the Franchise Rule. One reason is that the Rule itself requires 
franchisors to ``furnish'' a ``written'' disclosure document. Arguably, 
these requirements would preclude the use of the Internet until such 
time as the Commission clarifies the term ``furnish'' and revises the 
definition of ``written'' to include electronic communications. Another 
reason is fear of liability. Franchisors appear unwilling to incur the 
costs associated with developing an online disclosure mechanism without 
some assurances that their mechanism will pass Commission muster. This 
reluctance is understandable in light of the Commission's evolving 
policy in this area, as developed through the ongoing Franchise Rule 
amendment process.
    The Commission believes that demonstration projects of the NPR's 
proposed Internet instructions would be in the public interest. In 
light of the franchise community's lack of practical experience with 
Internet disclosure, it is critical to probe the strengths and 
weaknesses of the NPR proposed instructions before they are 
incorporated into the final revised Rule. Through demonstration 
projects, the Commission can be alerted to any technological problems 
with the proposed instructions, receive feedback on whether franchisors 
are able to comply with the proposed instructions efficiently, as well 
as to identify areas where the proposed instructions might need fine-
tuning. As a result, the final Rule's Internet instructions are likely 
to be much more precise, enabling franchisors to comply with the Rule 
efficiently and with significant cost reductions.
    Accordingly, the Commission solicits all interested parties to 
submit petitions to the Commission for permission to implement a 
demonstration project, consistent with proposed section 436.7 of the 
NPR. The Commission will consider all such petitions on a case-by-case 
basis. To gain approval, the interested party must be able to 
demonstrate that its proposal meets the standards specified in proposed 
section 436.7 of the NPR. All demonstration projects will be on a trial 
basis only, and the Commission specifically reserves its right to 
terminate any demonstration project for any reason. To enable the 
Commission and the public to benefit from a demonstration project, an 
approved party must file written reports to appropriate Commission 
staff of its progress on at least a quarterly basis, describing any 
problems it has encountered with the proposed Internet instructions, 
any complaints from franchisors and franchisees, as well as any 
suggested improvements. Such reports will be placed on the public 
record.

List of Subjects in 16 CFR Part 436

    Advertising, Business and industry, Franchising, Trade practices.

    Authority: 15 U.S.C. 41-58.

    By direction of the Commission.
Benjamin I. Berman,
Acting Secretary.
[FR Doc. 00-17994 Filed 7-17-00; 8:45 am]
BILLING CODE 6750-01-M