Ways of Furnishing Disclosure Documents

The amended Rule expressly permits franchisors to furnish disclosure documents by any method they wish, including electronically. While a disclosure document must still be “in writing,” that term is defined broadly as “any document or information in printed form or in any form capable of being preserved in tangible form and read.” It includes: type-set, wordprocessed, and handwritten documents, as well as documents transmitted as electronic information on a computer disk, a CD-ROM, an email, or in web pages posted on the Internet.

Are There Any Specific Requirements for Electronic Disclosures?

While the amended Rule permits electronic disclosure, it also makes clear that such disclosures must not include electronic features such as pop-up windows, audio, video, and links to external documents. Features that enable a prospective franchisee to review a disclosure document efficiently are permitted, however, such as scroll bars, search features, and internal links (such as links between the Table of Contents and the specific disclosure items). Further, the amended Rule recognizes that franchisors may wish, but are not required, to furnish disclosures in alternative media. To that end, the cover page requirements permit franchisors to include a new provision that informs prospective franchisees how they may obtain a disclosure document in an alternative form – whether via an email, a CD-ROM, an Internet posting, or some other means.

Is Electronic Disclosure Permitted for All Franchisors as of July 1, 2007?

Since July 1, 2007, franchisors have been permitted to use one of three formats: the original Franchise Rule, the UFOC Guidelines, or the amended Rule. As of June 30, 2008, however, only the amended Rule format will be permitted. Technically, this requirement would permit a franchisor to furnish disclosures electronically only if the franchisor opted to use the amended Rule – the only one of the three available sets of disclosure requirements that expressly permits electronic disclosure. Nevertheless, the FTC staff would not recommend enforcement action against any franchisor that did not opt to comply with the amended Rule prior to June 30, 2008, but furnished electronic disclosures, if the franchisor was otherwise in total compliance with either the UFOC Guidelines or the original Franchise Rule. While ensuring that franchise purchasers receive adequate protection, this approach conforms to the spirit of the Electronic Signatures in Global and National Commerce Act (“E-SIGN”), 15 U.S.C. § 7001. Accordingly, for FTC compliance, all franchisors can begin using electronic disclosures on July 1, 2007. Whether electronic disclosure satisfies state requirements is an issue that can be resolved only by consulting with individual state authorities. Of course, any franchisor electing to furnish disclosures electronically must follow the specific instructions pertaining to electronic documents set forth in the amended Rule (e.g., no pop-up screens, audio, or video).

CREDIT: The content of this post has been taken from the Federal Trade Commission’s document, Franchise Rule Compliance Guide.