Franchising & Distribution Law Blog

Here are some key points identified by the speakers at the 2012 Distribution Symposium on navigating through the legal landmines in distribution:

State revenue enhancement: The states are desperate for money and trying to collect more revenue using a variety of approaches. For example, some states are trying to attribute nexus status to a parent because an affiliate has an office in the state. Other states are using the escheat laws to recover old credits and refunds due to a customer, such as from unused gift cards.

As gift cards continue to rise in popularity among consumers, the regulations and laws that companies must follow in issuing and accepting them continue to increase as well. Beyond the extensive requirements of the new federal gift card law – Regulation E – one of the issues just starting to gain traction with state legislatures is the idea of requiring retailers to give customers “cash back” on a gift card once the balance falls below a particular level.

Franchisors often complain about the complexity of franchise laws and wish to structure distribution systems in a way to avoid those laws. Anybody who manages to do that, however, should be aware of the federal and state business opportunity laws that may apply to such systems. To generalize, a business opportunity is an agreement under which the seller/franchisor provides the buyer/franchisee with goods or services to help start a business and makes some representations about the money the buyer can make, that the seller will reimburse the buyer for losses, or provide a sales or marketing plan. Franchisors can usually escape applicability of the business opportunity law because exemptions for franchises that comply with the FTC Franchise Rule, but for those systems that structure around that rule business opportunity laws may become an issue.