December 20, 1999
Via Electronic Mail (FRANPR@ftc.gov)
and Federal Express
Federal Trade Commission
600 Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Re: 16 CFR Part 436
Proposed Rule Making
AFC Enterprises, Inc. respectfully submits
the following comments to the Notice of
Proposed Rulemaking ("NPR") released by the Federal Trade
Commission ("FTC") on October 22, 1999, relating to proposed
changes to the FTC Franchise Rule (the "FTC Rule").
AFC Enterprises, Inc.
AFC Enterprises, Inc. is the operator and/or
franchisor of 3,300 quick service restaurants, bakeries and cafes
operating under the POPEYES CHICKEN and BISCUITS, CHURCHS CHICKEN,
CINNABON, SEATTLE'S BEST COFFEE and TORREFAZIONE ITALIA Systems.
The Company and/or its predecessors have been in operation since 1952
and have been involved in franchising since the early 1960's.
AFC's restaurants, cafes and bakeries currently operate in 44 states in
the United States and in 26 additional countries.
Comments to NPR
1. International Franchise
Sales. AFC strongly supports the FTC's position in the
NPR that the scope of the FTC Rule be limited to the sale of franchises
"...to be located in the United States, its possessions and/or
territories,..." and not extend to franchises outside of the
United States. AFC commends the FTC for its finding that
"...mandated pre-sale disclosure in international franchise sales
is unnecessary, may be misleading and may impede competition..."
(NPR Section C, Paragraph 5.a. Emphasis added.) AFC
respectfully suggests that the FTC clarify the fact that the FTC Rule
will not apply to U.S. citizens and/or corporations purchasing
franchises to be developed outside of the U.S. (even where the sale
itself is consummated in the U.S.).
Predecessors. The NPR proposes to expand the definition of a
franchisor's "predecessor" to include "a...person...from
whom the franchisor obtained a license to use the trademark or trade
secrets in the franchise operation...." Extending disclosure
to all such entities, even if they are affiliates in unrelated
businesses, will be unnecessarily burdensome to franchisors, add a great
quantity if irrelevant information to UFOCs, and may have the unintended
effect of causing prospective franchisees not to read the massive
disclosures which would result. If the FTC concludes that
knowledge of the existence of such predecessors is, in fact, essential,
AFC respectfully requests that disclosure be limited to the existence of
3. Disclosure of Franchisor's
Corporate Parent. In order to avoid the burden and
inclusion of potentially misleading information discussed in Paragraph
1, above, AFC requests that the FTC consider limiting such disclosures
to Corporate Parents involved in Franchising or who provide similar
products or services as are offered by the Franchisor.
4. Earnings Claims. AFC
strongly supports the FTC's conclusion that inclusion of Earnings Claims
in Offering Circulars remain voluntary and not be mandated.
5. 14 Day Disclosure/5 Day
Agreement Review. AFC strongly supports the FTC's
proposed revision of the current "first personal meeting"
disclosure trigger and replacing it with a simple "fourteen (14)
calendar day" rule. AFC also supports the proposed change of
the five (5) "business" day contract review period to a five
(5) calendar day rule.
6. Electronic Disclosures.
AFC strongly supports the FTC's recommendation
concerning electronic disclosure to prospective franchisees. This
proposal will result in more information getting to prospective
franchisees faster, expedite the development of franchised units by
Franchisees, and reduce the cost of disclosure for franchisors.
Through the use of current and future technology, prospective
franchisees may, in fact, become even better informed consumers of
franchises. In order to maximize these benefits, AFC respectfully
suggests that the FTC delete the "prior consent" pre-condition
to electronic disclosure.
7. Sophisticated Investor
Exemptions. AFC strongly supports and recommends
adoption of the proposed new Sophisticated Investor Exemptions.
AFC further urges the FTC to consider expanding the scope of the
Sophisticated Investor Exemptions to include (i) existing franchisees
and (ii) employees of Franchisor who have had management responsibility
for the offer or sale of the franchisor's franchises and/or
administration of the franchised network.
8. Litigation (Item 3).
AFC respectfully recommends that the FTC eliminate the
proposed requirement that franchisors disclose "franchisor-initiated"
lawsuits or, in the alternative, limit such disclosure by (i) adding a
relevant minimum threshold which would trigger such disclosure (i.e.,
the franchisor has commenced similar actions against 20% of the
franchised units) and/or (ii) enumerating the types of franchisor
initiated claims which must be disclosed.
AFC would again like to commend the FTC and
its staff for its efforts to improve the
FTC Rule and to incorporate the commercial and technological realities
facing franchisors and franchisees today. We appreciate the
opportunity to participate in this process and remain available to the
FTC and its staff to elaborate on these comments and/or to assist in any
way we can.
AFC Enterprises, Inc.
Kenneth S. Kaplan
Assistant General Counsel
cc: Frank Belatti, Chief Executive Officer
Dick Holbrook, President and Chief Operating
Samuel N. Frankel, Esq., Executive Vice
President, General Counsel & Secretary