[Federal Register Volume 68, Number 231 (Tuesday, December 2, 2003)]
[Notices]
[Pages 67443-67444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-29923]


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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 March 31, 2003, the commission published a notice in the 
Federal Register soliciting comments on a petition filed by Rolls-Royce 
Corp., in connection with its sale of engine maintenance centers. 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 Rolls-Royce engine 
maintenance centers.

EFFECTIVE DATE: December 2, 2003.

FOR FURTHER INFORMATION CONTACT: Steven Toporoff, Room 238, Federal 
Trade Commission, Washington, DC 20580; (202) 326-3135.

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

[[Page 67444]]

Franchising and Business Opportunity Ventures'' filed by Rolls-Royce 
Corp.
    On March 31, 2003, the Commission published a notice in the Federal 
Register soliciting comments on a petition filed by Rolls-Royce Corp. 
(``Rolls-Royce'' or ``Petitioner''). Rolls-Royce sells maintenance 
center franchises to service its turboprop, turbofan, and industrial 
gas turbine engines. 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 May 30, 2003. 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 pre-sale disclosures required by the Franchise Rule are 
designed to prevent deceptive acts or practices. 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.
    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 petition demonstrates that potential maintenance center 
franchisees 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.
    In particular, we note that the purchase of a Rolls-Royce 
maintenance center is among the most costly of franchise offerings. On 
average, the maintenance centers have approximately $10 million in 
assets, excluding land and buildings. 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 offer of Rolls-Royce 
maintenance centers and found no evidence or likelihood of a 
significant pattern or practice of abuse. If any such evidence exists, 
it has not yet been brought to the Commission's attention in this 
proceeding.
    Thus, both the record in this proceeding and all prior experience 
to date with other Franchise Rule exemptions support the conclusion 
that Petitioner's sale of Rolls-Royce maintenance centers accomplishes 
what the Rule was intended to ensure. The conditions most likely to 
lead to abuses are not present in the sale of the maintenance centers, 
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 sale of maintenance center 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 maintenance centers 
by Rolls-Royce Corp. This opinion is based on the information submitted 
and representations made in Rolls-Royce's petition. The grant of the 
petition applies only to the extent that actual company practices 
conform to the practices described in the petition.

    Issued: November 10, 2003.
    It is so ordered.

    By the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 03-29923 Filed 12-01-03; 8:45 am]
BILLING CODE 6750-01-M