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 21st Century technology to the
happened on the way to the dream.
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
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 email@example.com