Franchising’s New Electronic World

One of the truly substantial leaps forward made by the Amended FTC Rule that went into effect last year was the liberal embrace of electronic franchise disclosure.  I thought that this was the single most significant change of the new rules.  Indeed, the implementation of electronic disclosure did more to bring franchising into this century than any other change made to the old rules we had lived with since the 1970s.  

Under the new rules, franchisors may provide disclosure using any number of electronic formats, including those that are not yet invented.  There are a few limitations that apply, of course, for the protections of prospective franchisees in the marketplace.  Franchisors must create a single document that replicates what would be printed in a paper document, the FDD cannot be presented as a series of separate smaller files.  The Receipt pages must be part of the single file; they cannot be separate from the body of the FDD.  With the exception of non-substantive links (such as downloading a copy of Adobe Reader), no external Internet links can be imbedded in the document, although franchisors may include internal navigational tools that would help the reader search or scroll through the document.  Franchisors must give prospects a choice of formats they can read.  After all, electronic disclosure doesn’t help if the prospect does not have a computer or does not have the software that can read a particular format of electronic file.

I had looked forward to the day when my franchisor clients could post their 250 page franchise disclosure documents on their web sites, or sent prospects a CD that costs all of $0.15 rather than a photocopied document that costs $25 to reproduce and almost that much to send.  I envisioned prospective franchisees reading these documents carefully on screen, printing out – or emailing – the portions they need to take to their advisors.  They would print out the Receipt page, sign, date, and send it back to the franchisor thankfully.  I was confident that this would save whole forests of trees from destruction for the production of long paper documents that were clogging our landfills.  Franchising gone green.  The new world of 21^st Century technology to the rescue.

Only, something happened on the way to the dream.

Franchisors are still printing their franchise disclosure documents on paper. Why?  My franchisor clients tell me it is because prospective franchisees are demanding it.  It seems that electronic disclosure is now running ahead of the comfort levels of recipients.  People do not yet want to study a disclosure document on a computer screen.  They want to receive a document they can hold in their hands, refer to easily, turn actual pages, and file away in a cabinet drawer (or throw away with gusto).  Maybe prospects simply want the franchisor to pay for the cost of printing the document on paper, so they don’t have to do it themselves.  That’s understandable, I suppose, but it’s not what I expected.  I thought that prospective franchise investors would welcome the absence of weight, appreciate the ease of document handling, and enjoy dealing with a franchisor that has gone green and “gets it.”  I still think that day will come.

The dream lurches on.

Andrew A. Caffey is a nationally recognized franchise attorney in Washington, DC, a former General Counsel of the International Franchise Association, and an arbitrator with the American Arbitration Association.  Contact him at acaffey@gmail.com