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RE:16 CFR Part 436- Franchise Rule Comment
These comments are submitted in response to the Commissioner's invitation to interested parties to submit data, views and arguments on the proposed changes to the Franchise Rule as set forth in the notice of proposed rulemaking published on October 22, 1999 ("Notice"). These comments specifically address the deletion of the current exclusion for Cooperative Associations from the proposed Franchise Rule.
TruServ Corporation is an organization operated on a cooperative basis by and for independent hardware retailers which wholesales hardware and hardware related products and services to its Member-retailers doing business under the True Value name. TruServ's cooperative form of business organization allows the owners of independent hardware stores nationwide to compete with large corporations by joining together to obtain greater product selection and lower prices through combined purchasing and distribution power. As a cooperative, TruServ distributes its yearly profits to each its Members in the form of patronage dividends.
To date, TruServ has over 8,000 cooperative Members. They own TruServ Corporation and operate the company for the purpose of acquiring, collectively, the hardware and related goods and services they need to operate their hardware stores profitably. The purpose and goal of TruServ's cooperative is to allow small independent retailers the opportunity to compete in the retail market against large, public competitors.
Accordingly, TruServ is an interested party and very concerned with the elimination of the Cooperative Association exclusion as currently set forth in 16 CFR §436.2(a)(4)(ii). When the Commission promulgated the Franchise Rule, it noted that while coopertaive marketing shares some features with franchise systems, " a cooperative is analytically distinguishable from franchising [and their] organizational structure obviously differs from that in franchising." 43 Fed. Reg. 59709. Finding no record evidence to suggest that the disclosures required by the Rule to protect them from the practices or the coopertaive which they own, the Commission excluded them from the Rule.
Although the Commission in the Notice suggests that it is eliminating the various exclusions because they no longer serve a useful purpose, that today there is no confusion about the extent of Rule coverage, and that the Commission is not signaling a substantive change in its policy (Notice §C. 12), TruServ fears that its elimination for streamlining purposes will be misconstrued by many and lead to claims that its cooperative system is a franchise.
We live in a very litigious society. As such, even though there is no private right of action under the Franchise Rule, it seems that anything the Commission can reasonably do to eliminate unclear or ambiguous language in the Franchise Rule would help. Accordingly, defining terms and specifically setting forth exclusions is an absolute necessity in eliminating any uncertainty about the scope of coverage.
We also have a concern that the elimination of the cooperative
exclusion will not only expose cooperatives to unlimited litigation and
expense, but may be interpreted by state and federal legislative and
judicial branches of government to treat them like
TruServ Corporation was founded as a cooperative in 1948 with the hope of providing independent hardware store owners nationwide an opportunity to become part of an organization that would allow them to compete with large corporations by joining together to obtain greater product selection and lower purchasing prices. More likely than not, many other coopertives were formed for similar reasons. The original drafters of the Franchise Rule took special notice of cooperatives and specifically carved out an exclusion for them. They wanted there to be a clear distinction between cooperatives and franchises. These two forms of business organizations are separate and distinct and need to continue to be treated as such. Accordingly, we respectfully request the Commission to maintain this distinction by not eliminating the cooperative exclusion.
Thank you for the opportunity to provide comments on the proposed revisions to the Franchise Rule.
Very truly yours,
Diane T. Nauer