Ohio Practical Business Lawyer & Attorney : Teri Rasmussen : Lane Alton & Horst Law Firm : Commercial Law, Creditors, Business Formation : Columbus, Central Ohio

Beginning this past July 1, franchisors were required to provide information to would-be franchisees in a new format.  The Franchise Disclosure Document (FDD) has now replaced the Uniform Franchise Offering Circular (UFOC) as the vehicle by which potential franchisees are told of the benefits and risks of a particular franchise. 

Here is the complete text of the new amended new rule.  For those with less familarity with franchising who want to fully understand the rules, the Federal Trade Commission's Statement of Basis and Purpose may be especially helpful. 

I've previously posted on The Franchising Route to Starting a Business, including several links  to general resources for evaluating franchise opportunities and specific information about how the new FDD differs from the old UFOC.  In this post, i want to focus more specifically on the new FDD. 

The Federal Trade Commission's website offers a helpful FAQ about the new rule.  In addition, this past May, the Federal Trade Commission (FTC)  issued a lengthy, but very comprehensive and informative Amended Franchise Rule Compliance Guide.

The Compliance Guide begins by explaining what sort of business relationships constitute a franchise subject to the FTC Amended Rule and the process required for furnishing the required documentation.  It also explains the sort of information which must be included and that which is prohibited.  The lion's share of this 154 page document consists of an explanation of each of the FDD's required items and includes specific examples of how each item should be completed with sample disclosures and disclosure formats.  It also specifies the differences between the UFOC and the FDD with respect to the information now required,  In short, whether franchisor or franchisee, this is an extremely useful publication. 

Here's another example of the new Franchise Disclosure Document. 

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So you've decided to "get with it" and enter the 21st century in your marketing and business development efforts?  You're really going to do it - harnessing the power and magic of the internet and e-mail marketing!  GREAT!  But did you know that there are some legal pitfalls waiting to trip you up if you fail to do it correctly?

And failing to do it right CAN cost you - BIG TIME!  Recently, at the request of the Federal Trade Commission (FTC), a federal judge in Chicago, Illinois ordered Sili Neutraceuticals, LLC and Brian McDaid to pay more than $2.5 MILLION for making false advertising claims and sending illegal e-mail messages in violation of the FTC  Act and the CAN-SPAM Act.  Why?  Well, according to the FTC  Press Release, among other reasons, the commercial e-mail messages being sent

• had misleading subject headings
• failed to provide clear and conspicuous notice of the opportunity to decline receiving any further e-mails from the sender
• failed to provide  a functioning return e-mail address
• failed to include the sender's valid physical postal address 

Nor is this simply an isolated incident or a problem only for inexperienced or small businesses.  FTC also recently settled with Cyperheat, Inc. regarding the behavior of its downstream affiliates, imposing significant monitoring responsibilities on Cybernet, Inc.  For a summary of the responsibilities being imposed and suggestions on how to avoid trouble, visit "Affiliates: What is a Company's Responsibility?" post on Laura Adkins'  Word to the Wise blog.

What CAN-SPAM Is All About.  So what, exactly, is this CAN-SPAM Act and how can you make sure you don't accidentally run afoul of its requirements, exposing yourself to unwanted possible liability and interference with the operation of your business?

• The CAN-SPAM Act is  the Controlling the Assault of Non-Solicited Pornography  And Marketing Act of 2003.  Its purpose is to authorize the FTC to enforce the first national standards for sending commercial e-mail, and to limit the bulk sending of e-mail.

• On its website, the FTC provides an excellent summary concerning "The CAN-SPAM Act: Requirements for Commercial Emailers" which highlights the major requirements of the CAN-SPAM Act, as well as the penalties for non-compliance and "Remove Me" Responses and Responsibilities: E-mail Marketers Must Honor 'Unsubsribe' Claims" which gives specific guidance concerning responsibilities of businesses using e-mail marketing techniques.   

Scope of CAN-SPAM Act.  The CAN-SPAM Act differentiates between "commercial" and "transactional" messages.  Thus, messages that are primarily invoicing or related to account information are not subject to CAN-SPAM.  You can even include some advertising content as long as it occupies a non-prominent postion.  (Some may wonder if it's even worth the effort to do this, especially since including any advertising arguably exposes you to at least some risk of liability.)  Rule of Thumb - if you're sending exactly the same message to lots of customers or clients (or potential customers or clients), CAN-SPAM probably applies. 

Religous or political messages are exempt.  Also, at least to some extent, messages to existing customers or others who have affirmatively inquired about your goods or services may also be exempt.

The Bottom Line: What You Really Want to Know.  If you're like most business owners, all you really want to know is what - exactly - you have to do to be safe.  Obviously, to be sure you have properly complied, you should consult legal counsel to advise you about your particular situation.  However, here is some very GENERAL guidance:

• Unsubscribe Compliance.  Recipients of your e-mail  MUST  have an effective option to unsubscribe and you must comply within 10 days (or if at all possible, sooner).  You should also keep a list of folks whose "unsubscribe" requests you have honored so you can demonstrate compliance if necessary.  In addition, once someone has unsubscribed, you can't legally sell or transfer that person's e-mail address or other information. 

• Content.  Be SURE to accurately reflect yourself as sender and don't get too cute with the subject lines; accurate and proper descriptions are essential.  In addition, you MUST include your physical postal address within the body of the e-mail.  (It's probably not a bad idea to also include the main phone number for your business.)  While providing a link to your company website might satisfy the address requirements, why take the chance?  Finally, if your company is involved in the distribution, production, or other connection, with or of "adult content", you MUST so label it. 

• Sending Behavior.  Don't send messages with false headers, through open relays, or which contain a harvested e-mail addresses.

Other Points to Keep in Mind.  If you promise refunds to dissatisfied curtomers, make certain you deliver.  Identify your e-mail, or otherwise make sure it can be identified, as an advertisement.  Remember that even seemingly innocuous correspondence such as notifications of "seminars", "open houses", or "receptions" can still fall within the orbit of CAN-SPAM.   

What Can Happen If You Mess Up.  Each violation (and every single e-mail sent can be considered a separate violation) is subject to fines of up to $11,000.00 (so if you sent the same e-mail to 10 people, that could potentially be a $110,000 fine).  Additional penalties, including criminal prosecution and imprisonment, are also a possibility under certain conditions.  So you kinda want not to mess up on this.

BOTTOM LINE (Practical Legal Counsel): It's just not that hard to make sure you're doing it right so why take the risk?  If you pay attention and make the effort, you can virtually eliminate this potential liability.  If you don't, it really could be the end of your business.  And, of course, good legal counsel can help make sure you're addressing this concern effectively.   

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