[Federal Register Volume 65, Number 138 (Tuesday, July 18, 2000)]
[Proposed Rules]
[Pages 44484-44485]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 00-17994]
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FEDERAL TRADE COMMISSION
16 CFR Part 436
Trade Regulation Rule on Disclosure Requirements and Prohibitions
Concerning Franchising and Business Opportunity Ventures
AGENCY: Federal Trade Commission.
ACTION: Proposed Rule; Commission Solicits Demonstration Projects for
Electronic Pre-Sale Disclosure.
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SUMMARY: The Federal Trade Commission (the ``Commission'') solicits
proposals to conduct demonstration projects implementing the proposed
instructions for electronic dissemination of disclosure documents set
forth in Sec. 436.7 of the Commission's October 22, 1999, Notice of
Proposed Rulemaking.
DATES: Proposals to conduct demonstration project start on July 18,
2000.
ADDRESSES: Petitions for permission to implement a demonstration
projects should be addressed to: Federal Trade Commission, Office of
the Secretary, Room 159, 600 Pennsylvania Ave., NW., Washington, DC
20580.
FOR FURTHER INFORMATION CONTACT: Steven Toporoff, (202) 326-3135,
Division of Marketing Practices, Bureau of Consumer Protection, Federal
Trade Commission, Washington, DC 20580.
SUPPLEMENTARY INFORMATION: On October 22, 1999, the Commission
published a Notice of Proposed Rulemaking (``NPR''), soliciting comment
on a wide-range of proposed amendments to the Franchise Rule. One
proposal would permit franchisors to comply with the Franchise Rule by
furnishing prospective franchises with disclosures electronically,
including through the Internet. Among other things, the proposal would:
(1) Require franchisors to obtain a prospective franchisee's prior
consent to receive disclosure electronically; (2) permit a prospective
franchisee the right to obtain a paper disclosure document until the
time of sale; and (3) require franchisors to provide a prospective
franchisee with a paper summary
[[Page 44485]]
document, which among other things, includes the disclosure document's
table of contents, as well as an admonition to download or otherwise
preserve document's table of contents, as well as an admonition to
download or otherwise preserve the electronic disclosure document. The
proposed instructions would also specify the general formal for an
electronic disclosure document, ensuring that the disclosure document
could be downloaded or otherwise preserved, and that the disclosures
are clear, conspicuous, and do not contain extraneous or distracting
features (such as animation or pop-up screens). The proposal would
permit franchisors to insert navigational tools that aid in the
reviewing a disclosure document, including scroll bars, search
features, and internal links.
The NPR comment period closed at the end of January, 2000. Forty
comments, including five rebuttal comments, were submitted, several of
which address the Commission's proposed Internet compliance
instructions. Commission staff are currently analyzing the various
comments and are preparing recommendations to the Commission on
Internet compliance and other disclosure issues.
The Commission recognizes that, to date, few franchisors have
sought to use the Internet or other electronic technologies to comply
with the Franchise Rule. One reason is that the Rule itself requires
franchisors to ``furnish'' a ``written'' disclosure document. Arguably,
these requirements would preclude the use of the Internet until such
time as the Commission clarifies the term ``furnish'' and revises the
definition of ``written'' to include electronic communications. Another
reason is fear of liability. Franchisors appear unwilling to incur the
costs associated with developing an online disclosure mechanism without
some assurances that their mechanism will pass Commission muster. This
reluctance is understandable in light of the Commission's evolving
policy in this area, as developed through the ongoing Franchise Rule
amendment process.
The Commission believes that demonstration projects of the NPR's
proposed Internet instructions would be in the public interest. In
light of the franchise community's lack of practical experience with
Internet disclosure, it is critical to probe the strengths and
weaknesses of the NPR proposed instructions before they are
incorporated into the final revised Rule. Through demonstration
projects, the Commission can be alerted to any technological problems
with the proposed instructions, receive feedback on whether franchisors
are able to comply with the proposed instructions efficiently, as well
as to identify areas where the proposed instructions might need fine-
tuning. As a result, the final Rule's Internet instructions are likely
to be much more precise, enabling franchisors to comply with the Rule
efficiently and with significant cost reductions.
Accordingly, the Commission solicits all interested parties to
submit petitions to the Commission for permission to implement a
demonstration project, consistent with proposed section 436.7 of the
NPR. The Commission will consider all such petitions on a case-by-case
basis. To gain approval, the interested party must be able to
demonstrate that its proposal meets the standards specified in proposed
section 436.7 of the NPR. All demonstration projects will be on a trial
basis only, and the Commission specifically reserves its right to
terminate any demonstration project for any reason. To enable the
Commission and the public to benefit from a demonstration project, an
approved party must file written reports to appropriate Commission
staff of its progress on at least a quarterly basis, describing any
problems it has encountered with the proposed Internet instructions,
any complaints from franchisors and franchisees, as well as any
suggested improvements. Such reports will be placed on the public
record.
List of Subjects in 16 CFR Part 436
Advertising, Business and industry, Franchising, Trade practices.
Authority: 15 U.S.C. 41-58.
By direction of the Commission.
Benjamin I. Berman,
Acting Secretary.
[FR Doc. 00-17994 Filed 7-17-00; 8:45 am]
BILLING CODE 6750-01-M