The sale of a franchise allows a business, known as a franchisee, to acquire an existing business model and brand, along with the goodwill associated with that brand. Another business, known as a franchisor, sells the right to use one or more trade names and to operate a business under certain parameters, usually in exchange for a cash payment, an ongoing fee, and a share of revenue. This bundle of rights and obligations is known as a “franchise.” It gives the franchisor the opportunity to benefit further from the brand and its goodwill without having to start or operate additional business locations.
A franchise agreement places a wide range of obligations on a franchisee, who is taking on the responsibility of managing and maintaining the franchisor’s reputation. Franchisors are obligated by law to make certain disclosures to prospective franchisees. Our Chicago franchise litigation lawyers represent both franchisors and franchisees in business and commercial litigation, assisting businesses in asserting claims for breaches of franchise agreements and other disputes, as well as negotiating, mediating, and litigating such claims.
Franchise Disclosure Document
The Federal Trade Commission (FTC) regulates sales of franchises by requiring franchisors to disclose various information regarding the franchisor itself and the details of the franchise to any prospective buyer. The disclosure document required by the FTC is called the Franchise Disclosure Document (FDD). It was previously known as the Uniform Franchise Offering Circular (UFOC), but the FTC changed this recently when it modified its rules. Individual states may also require their own disclosure document, and some states require franchisors to file franchise offering circulars in the state’s public records. Information required to be disclosed in the FDD includes:
- The franchisor’s business or trade name;
- Trademarks or other intellectual property that identify the franchised goods or services;
- Length of time the franchisor has been in business;
- Prior offerings and sales of the franchise;
- Recent fraud-related judgments or settlements; and
- Detailed statement of payments and other compensation expected from the franchisee.
Many disputes between franchisees and franchisors involve allegations that the franchisor failed to disclose information required by FTC regulations. Other common disputes involve failure to pay required fees pursuant to the franchise agreement, misuse of intellectual property, and various breach of contract claims. Our franchise litigation attorneys can help Chicago clients navigate these issues.
Disputes between franchisors and franchisees that may develop into litigation may include:
- Infringement or misuse of trademark or copyright;
- Failure to register franchise offerings;
- Breach of a franchise agreement;
- Fraud in the offering of a franchise;
- Fraud in the purchase of a franchise;
- Failure to disclose information as required by state or federal law;
- Other breach of contract; and
- Consumer fraud claims.
In situations where a franchisor sells franchises to a large number of franchisees, with similar defects or failures to disclose, franchisees may be able to bring a class action suit for franchise claims.
DiTommaso Lubin Austermuehle’s Chicago franchise litigation attorneys have offices in Oakbrook Terrace and Chicago, Illinois. We represent clients throughout Illinois, including the Chicago metro area and DuPage County, as well as Indiana and Wisconsin. To schedule a consultation with a franchise litigation lawyer in Chicago, contact us via email, at (877) 990-4990, or locally at (630) 333-0000.